The Fate of Carrier Billing in a Changing World of Payments
23 March 2021
In recent years the growth of smartphones as well as the willingness to use digital payment processes has transformed the payments industry. E-commerce exploded in 2020 to the highest growth rate in five years with the pandemic clearly accelerating the use of Alternative Payment Methods.
Carrier billing is expected to account for 1 in 5 digital sales by 2024. But what alternatives are out there and why does carrier billing continue to come out on top?
A Cashless Society
In countries such as Sweden, cash has accounted for only 1% of transactions from as far back as 2016. China is well on its way to becoming a cashless society and mobile payments already account for 4 out of every 5 transactions.
The impact of Covid-19
- In March 2020 the World Health Organisation warned that banknotes may be spreading the virus
- Cash at point of sale dropped 32% globally in 2020
- In the UK ATM transaction volumes were more than 60% lower in 2020 than in 2019
- Countries have raised transaction limits on contactless payments with many businesses refusing to accept cash at all
With 42% of the Eastern European population unbanked some citizens are still reliant on cash. For example, cash payments account for over 70% transactions in Romania. Conversely in Norway only 3% of transactions are made using cash with 100% of the population owning a bank account.
Juniper Research estimates that 28% of the population were unbanked in 2020, with Asia Pacific and Africa & Middle East having a large proportion of unbanked adults.
Carrier billing offers is a practical alternative for unbanked citizens. Payments are made through simple transactions, in familiar currencies, and through a bill the user is already paying.
The credit and debit card decline
Global credit card e-commerce transactions are estimated to fall from 22.8% to 20.8% between 2020 and 2024 with debit card payments also falling by 0.3%.
Leading OTT video streaming players such as Netflix have been heavily reliant on card payments, which has proved problematic when launching in markets such as the Philippines and Indonesia, where credit card penetration is around 4%-7% and under 15% respectively.
Subscription payment models are usually closely tied to debit or credit card payments but carrier billing can profit by allowing small spenders to purchase select elements from large content packages for significantly smaller fees e.g. a single show, sports highlights.
Small purchases are less profitable on a per-unit basis but can accumulate when reaching large emerging markets.
Carrier billing also has a low-click advantage over cards. The more time a user has to spend on a transaction, the less likely they are to complete it and carrier billing removes extra steps.
Credit cards may compete with typically low fees but removing friction from the purchasing experience increases conversion rates, and user acquisition and retention can mean more profit in the long run.
With the need for debit and credit card details eliminated, carrier billing allows merchants to flexibly bill for content, as long as consumers are using an Internet-connected device.
A thing of the past for Premium SMS
Premium SMS became popular in the 2000s as a simple way to pay using offline media. However limitations and problems such as scams, user refunds, taxes and delayed txt messages have seen mobile operators favouring carrier billing payments in recent years.
There has been a steady decline of Premium SMS as the migration to carrier billing intensifies. PSMS was worth $5.1 billion in 2018 and will only be worth $3.98 billion in 2023. It is expected to experience dramatic falls in revenues and will account for just 14% of the VAS market.
The synergy of mobile wallets and DCB
The mobile wallet market is estimated to grow from its current market value of more than $80 billion to over $270 billion by 2025.
Mobile wallets are starting to fill the alternative payments gap and take a collaborate approach with carrier billing. Wallets are becoming a major channels for airtime top ups, offering a cheaper alternative for carriers than traditional top up agents.
In 2020, digital and mobile wallets accounted for 44.5% of e-commerce and 33.1% of POS transactions, but digital wallets are far from being able to offer the universality of carrier billing and present merchants with a more fragmented landscape.
Carrier billing continues to thrive
A recent study from Juniper Research found that total spend over direct carrier billing will reach $100 billion for the first time by 2025; rising from $37 billion in 2020.
As consumers adapt and new technologies emerge mobile operators are increasingly seeking to be seen as payment providers. And while alternatives will always exist, the attraction of carrier billing for digital merchants is undeniable.
Ultimately the more ways there are to pay, the more users will end up paying, and offering the option of carrier billing can open up a new world of users through simple and frictionless mobile payments.