In the third part of our series of blogs summarising the recent Mobile World Live webinar on streamlined payment channels and managed payment services, we look at the role specialist payment platform providers can play in helping telcos navigate increasingly complex financial services regulation to open up new revenue streams in different regions of the world.
Rules in Japan and South Korea allow consumers to pay for physical goods through direct carrier billing (DCB) for example. But that is not the case in Europe where the newly introduced payment services directive 2 (PSD2) legislation only authorises DCB payments for a smaller number of specific types of services such as parking, ticketing and transportation. Other parts of the world require merchants and carriers to work with different payment license providers if they are to let customers pay for physical goods using DCB.
Telcos already trusted merchant brands
Allowing customers to fund the purchase of physical goods via DCB is a major opportunity for telcos and mobile network operators (MNOs) looking to grow their revenue streams beyond core connectivity. GSMA Intelligence estimates that 25% of all consumer devices sold by operators are non-mobile phones, including tablet computers, smartwatches, televisions, laptops and speakers for example.
While those big-ticket items are unlikely to meet widely implemented caps on mobile payment transaction values, the volumes indicate that carriers are seen as trusted sources for physical purchases while their central role within the Internet of Things (IoT) digital ecosystem also makes them well placed to sell or orchestrate payments for connected IoT devices themselves.
“Some operators are already doing that on a case by case basis depending on the market,” pointed out Pablo Iacopino, director of ecosystem research at GSMA Intelligence. “If you think about some of the regulations around IoT, cellular and WiFi networks, there are benefits for operators there to drive incremental revenue from devices alongside connectivity services too.”
Making the most of those opportunities requires the seller to understand what is and isn’t feasible in terms of financial services and data protection regulation, however, and to put in place appropriate measures to ensure compliance. DOCOMO Digital has staff in multiple locations around the world who already have detailed knowledge of the different regulatory environments that characterise specific territories and markets. Those frameworks can then be matched against the commercial strategy and direction of the operators in question to come up with suitable payment solutions tailored to consumers whilst negotiating partnerships with local payment providers and merchants.
“It requires on one side a platform which can manage all that complexity whilst maintaining regulatory compliance, and on the other side the capacity to provide all the necessary information to users and telcos,” explained Fernando Gonzalez-Mesones, chief transformation officer at DOCOMO Digital.
Formulate effective strategies for dealing with bad debt
Most telcos are looking to expand their DCB capabilities into payments for physical goods, but equally recognise the regulatory challenges they face. While carriers have licenses to sell telecommunications services, the same is not usually valid for physical goods, for example.
“Also telcos are accustomed to dealing with third parties and merchants on different standards and retailers in terms of reconciliation, but I’m not sure the physical merchant would be able to agree on the same long payment terms,” suggested Chadi Alid, group API program director for digital and innovation at Zain Group, pointing out that responsibility for bad debt within the merchant ecosystem would also have to be agreed.
When poorly done in the past DCB has generated lots of complaints from customers, primarily issues with fraud, bad debt and refunds, whilst occasionally falling foul of local financial services and data protection regulation. Dealing with bad debt effectively is, therefore, a key aspect of any DCB operation, especially when it comes to the small volume of failed payments linked to post-paid SIM cards that can incur transaction, notification and taxation fees as well as additional handling costs. To manage the process with minimum impact on both the merchant and the subscriber, telcos need a platform that is able to understand both the consumer and the underlying processing infrastructure.
“There are several examples where we [DOCOMO Digital] has worked with carrier groups to reduce debt by up to a third using artificial intelligence (AI) technology,” explained Gonzalez-Mesones. “That is very common within traditional payment companies, but carriers have not yet fully adopted it.”
eWallets to aid market penetration
New financial services regulation and central banks in various parts of the world are increasingly focussed on electronic wallets (eWallets), with some national governments keen to encourage higher volumes of mobile and digital payments to broaden financial inclusivity and economic activity amongst the poorest segments of their populations. DCB has a role to play here too, especially in markets that favour pre-paid SIMs and mobile phone subscriptions that see consumers pay up front for their voice and data minutes.
Those customers are traditionally harder to accommodate in DCB arrangements but Iacopino notes interest in buying digital content using mobile payments even in territories where 50% of connections are pre-paid if partnerships between operators and merchants can work together to meet demand.
Many telcos have also introduced eWallets of their own to exploit the steadily increasing penetration of smartphones within their subscriber base. The best way for carriers to maximise DCB transaction volumes is to increase user penetration however. And that requires continuous collaboration with app stores and merchants to make sure that DCB is available as a payment option by default, followed by more attention to bad debt management and spending limits to improve the customer experience.
Operators also have to keep a close eye on the constantly evolving regulatory landscape, such as new rules recently introduced in the European Union [the payment services directive 2 – see PSD2 SCA to Improve Online Payment Protection].
“Ultimately you have to consider all the barriers to developing DCB in those markets,” said Gonzales-Mesones. “Regulatory compliance is key but you also need a strong position on the technical and operational side and be very efficient – all things that DOCOMO has done very well are is helping other carriers around the world to do.”