The biggest revenue growth for carriers in 2016 will be from payment services providers. Carriers who expand into this segment will work together with Visa, PayPal and PayTM.
Many payment platforms and wallets have reached a plateau in their existing bank-based payments business in Western markets. A majority of users who want to pay online with a bank card are already doing so. But in emerging markets their growth is stalling.
In the fastest growing smartphone markets, online banking infrastructure almost does not exist. For example, in India the smartphone market grew by 21.4% compared to last year while just 4.2% of the country’s population owns credit cards. This creates a growing gap between users who have access to online content but are unable to pay for it: an opportunity which so far has been untapped by financial service providers.
Carrier billing as a main payments product for carriers currently accounts for $6 billion (0.6%) of the global telecom revenue. At the same time payment giants will generate revenue exceeding the entire global $1 trillion telco industry. After all, payments companies are processing $1.4 trillion in e-commerce revenue in 2015. Processing even a fraction of the payments from financial services providers would enable carriers to significantly ramp up their payment products revenues.
While payments revenue right now for carriers is small, the growth potential is high compared to existing business lines. Competing in a local market to grab subscribers from other carriers is ineffective. The only way to do it is by increasing marketing budgets. At the end of the day, the carrier with the biggest budget will win. One can imagine the economical outlook to the situation where user acquisition cost is steadily increasing due to the bidding war while user life time value is in decline (-4.5% in 2014).
Martin Koppel,
CEO,
Fortumo
The other way to grow is to sell more of existing services. For example, 45% of mobile operators enable free data for some apps. The goal of this is to encourage users to turn on their mobile internet services. But the apps for which data is given out for free actually eat into other business lines. Making calls or texting on WeChat and Facebook Messenger affects carrier call and text revenue.
With both of these strategies, carriers are essentially snakes eating their own tail, locked into competition with other telcos in their country. But enabling payments for a broader audience allows mobile operators to sidestep sacrificing revenues from one business line to grow in another.
Financial services providers will kickstart payments growth for carriers since they have grown in a similar fashion themselves. eBay and AliBaba contributed significantly to the growth of their sister companies PayPal and AliPay. We can attribute PayTM’s growth partially to Uber adding them as their default payment method in India. This allowed PayTM to grow from 15 million to 100 million in less than a year. For carriers, these payment platforms will take on the role of the pioneer merchants in 2016.
2016 Trends and Outlook Polls
Carrier billing has already proved to be a reliable source of revenue. Google uses carrier billing in 35 markets, Microsoft in 52, Apple is also getting its feet wet. Most major gaming publishers also use carrier billing. According to SuperDataResearch, 14.4% of gaming transactions use carrier billing. Carriers are also working with streaming merchants (e.g. Netflix) and launching their own services (e.g. Hooq).
But like with any segment, digital content will plateau at some point. So financial services are the next logical step for even bigger “hockey stick” growth. Carriers are already exploring this segment. Smart invested into Rocket Internet for online payment products already back in 2014.
A steady user base growth for merchants in mature markets is unlikely to happen. And for carriers, focusing solely on growth from existing business lines will result in single-digit increases in revenue. The fact is a majority of the next 1 billion people going online will be located in emerging markets. And these people will want the same access to payments as their counterparts in the US or France. Taking a step into financial services the financial services industry might be risky for carriers. But the risk is smaller than arriving to the party when it is already over.
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We think 2016 will be a good year for carriers who have planned ahead for payments growth. The first to boost their payments growth are those carriers who:
- have direct carrier billing available with dynamic pricing and refund solutions
- support payment service providers' business models by offering payouts competitive with credit card processors
Others need to move fast as the $1.4 trillion opportunity will get swept away by someone else.
About The Author:
Martin oversees the everyday operational activities and organizational growth of Fortumo, making sure things are moving in the right direction. He brings 9 years of management, sales and marketing experience from different start-ups to Fortumo. Martin holds an MSc in Marketing and Business Administration and he is frequently speaking at industry events. On those rare occasions when Martin isn't working, he's reading short stories or teaching his slightly hyperactive Jack Russell terrier some new tricks.
