Martin Koppel, CEO and co-founder of Fortumo, says the Indian telecommunications industry was stirred up by a big leap forward when Idea Cellular launched mobile payments on Google Play. This launch brings all mobile operators in the market significant new revenue opportunities but also creates new payment related challenges.
Google Play’s launch has caused two significant changes to the carrier billing ecosystem in India. First, Google pays developers 70 percent of the end-user transaction (a global industry standard, also used by Apple and Microsoft). This means the commercial terms for carrier billing in India have now reached the industry standard 70-30 split, partly also thanks to a different approach to taxation.
Besides app stores, such conditions make carrier billing much more attractive also for global digital streaming merchants who cannot go with standard terms as their business model includes paying royalties to rights owners. With improved commercial terms, carrier billing could now also support the business model of companies like Pandora, Spotify, Netflix and Hulu.
Second, many global digital merchants have so far been reluctant to put significant focus on user acquisition in India. One of the important reasons has been lack of online payment access. We have first-hand experience in merchants failing to enter the market as their monetization strategy has relied only on card-based payments. But Google is a leading company in the digital industry and having them use carrier billing puts the payment method in a very visible spotlight. This will result in increased interest from other merchants towards India and entering the market with the help of carrier billing.
This “opening” of the market will present a significant revenue opportunity for mobile operators. In 2015, the average revenue per subscriber was Rs 130 for Indian carriers. But those users who pay with carrier billing generate significantly more revenue. Our own internal data for this year shows the average paying user spending Rs 235 per month. Depending on the market, average revenue from carrier billing on app stores is 2-5x higher. This means adding carrier billing to an app store can bring some Rs 500 – Rs 1000 additional revenue per paying user to carriers.
But such an increase in revenue does not happen on its own, regardless of whether the merchant using carrier billing is an app store, a music streaming service or someone else. Indian consumers are averse to spending money online and global merchants don’t often realize this. Without a localized approach, money gets left on the table. Carriers could take a more active approach as they have the best overview of the market and beyond being simply a payment enabler take the following steps to increase payment volumes:
Increasing general awareness of carrier billing
Some users find the way to pay with carrier billing on their own but most will not. Simple steps like creating an online landing page describing the carrier’s payment offering, training retail and support staff on the topic and having promotional materials at retail locations helps create user awareness on the availability of carrier billing.
Activating users to spend via carrier billing
The average Indian consumer who uses carrier billing makes 1.4 payments per month according to our internal data. But getting them to make their first transaction with carrier billing is the biggest conversion hurdle. Marketing campaigns such as refunding the first purchase or organizing lucky draw campaigns for users who spend a set amount through carrier billing can be used to familiarize users with paying for digital content through their mobile balance.
Monitoring traffic health and providing a good purchasing experience
With India being a predominantly prepaid market and users having low mobile account balances, a significant amount of transactions done through carrier billing are likely to fail. Carriers can negate this by tracking traffic health (successful to unsuccessful payments ratio) on a continued basis. Steps can also be taken to improve traffic health and the amount of successful payments, for example by asking users to top up their account with a text message after a failed payment.
Merchants have in place their own payment teams who monitor traffic and take steps to maximize revenue generated. But carriers who are also active and do not just rely on merchants bringing in the money will be able to significantly increase their payments volume. On top of that, ensuring a good purchasing experience is likely to have a churn reducing effect as consumers who are able to pay for content with one carrier are less likely to switch over for another provider.
The other key aspect for carriers besides getting more users to pay with carrier billing is risk management. Postpaid users are a minority in India, but their average spend is significantly higher compared to prepaid users. At the same time, with the growth of carrier billing popularity, “friendly fraud” (user chargebacks) and bad debt growth is also inevitable. The ideal situation that carriers will want to reach is one where revenue increases while loss from bad debt is minimized.
Tips to carriers
Subscribers can be categorized into user segments based on how much they should be able to spend (spend limits) and whether payments should be allowed or not (e.g. barred for enterprise accounts). For example, prepaid users are a significantly lower risk group in terms of bad debt than postpaid users who have just signed up for an account.
These user segments can be actively managed. While initially the spend limit for all users in one group would be the same, evaluating the user’s risk score and likelihood of bad debt on an ongoing basis will allow to modify spend limits for each user. This allows to cut off risky users from spending too much while enabling users with a legitimate intent to spend as much as they want.
Instead of a reactive approach (barring users with suspicious payment behavior after they have already spent the money), best practices from card-based payments can be implemented with carrier billing for proactive risk management. This includes measuring payment velocity (how often transactions are made, how much other users are spending with the merchants) as well as payment attributes (whether the same SIM card is used in several devices in a short timeframe, whether the timing of the transaction makes sense, whether the transaction is made from the region the user should be located in).
Carrier billing in India is entering a new and exciting era where global digital companies will want to take advantage of the payment method due to its universal coverage and simplicity. At the same time, carriers need to realize that it is not only the merchants who are responsible for increasing payment volumes and actively work on increasing revenue on their side as well. Increasing user spend through carrier billing to Rs 1,000 is achievable, but this goal will not be reached without hard work from not just the service providers but all parties involved.
Martin Koppel, CEO and co-founder of Fortumo