Feature Article

July 05, 2012

Carrier Billing Getting a New Chance in Mobile Payments?

Carrier billing, which allows customers to buy products with the charges appearing directly on their monthly bills, has been a modestly successful business. In most cases, those purchases have been related rather directly to products sold by the service provider, and have recently become more important as sales of digital goods have grown.

Telefónica thinks there is much more opportunity in carrier billing as it is used to support digital and virtual goods purchases.

Telefónica might be a bit optimistic, but the firm believes it can generate annual revenue of €5 billion ($6.2 billion) by 2015 from initiatives that leverage the carrier's billing and charging capabilities, as well as machine-to-machine services.

Telefónica Digital believes its new global "Direct to Bill" agreements with Facebook , Google , Microsoft Corp. and Research In Motion Ltd. will help it earn much more revenue as a provider of  billing services to application providers.

In most businesses, it makes a difference whether a firm's direct costs are 40 percent or 10 percent. Up to this point, revenue splits of about 60 percent for the merchant and 40 percent for a mobile carrier have sharply limited the types of products that can be sold using the mobile device and carrier billing.

Historically, carrier billing has had rather limited appeal as a payment mechanism. Products bought and billed directly to the mobile statement, for example, have imposed higher transaction costs, by far, than use of credit and debit cards.

Where it is common for transaction charges to range from 1.75 percent up to three percent for rival payment mechanisms, carrier billing traditionally has taken a whopping 40 percent of gross revenue, making most transactions unfeasible.

Of course these days, transaction charges for virtual goods are seen in a different way, as app stores routinely take 30 percent of gross revenue when apps are purchased from app stores. That essentially resets the range of expectations for digital sales transaction costs.

Mobile carriers are now dropping transaction charges closer to 10 percent, from 40 percent. “The carriers won’t go below 10 percent for digital or virtual goods, but they will lower their rates for physical,” said David Marcus, the CEO at Zong.That means carrier billing now has a new opportunity to gain share in the mobile commerce part of the mobile payments business.

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Edited by Braden Becker

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