The overlooked mobile payment: direct carrier billing (mobilepaymentstoday.com)

Direct carrier billing, also known as direct operator billing in some parts of the world, can be viewed in the mobile payments market as the kid who gets picked last in a pickup basketball game at the playground.

He or she might not seem like a skillful player on the surface, but can break out some nifty moves once the game gets started.

Direct carrier billing does not capture the imagination like NFC-enabled mobile payments, but financially underserved consumers in both emerging and developed markets continue to rely on it to buy digital content. That trend will continue and has the potential to generate significant revenue for both the third-party vendors enabling director carrier billing and the mobile operators themselves.

Direct carrier billing will provide telecoms worldwide with more than $12 billion in revenue in 2022, according to one prediction from research firm Analysys Mason. Juniper Research believes in Europe alone the value of digital content billed via direct carrier billing will reach more than 5.2 billion euros (US$7.1 billion) in 2017.

And while direct carrier billing remains in the realm of digital content such as games, music and movies, it is starting to have some real-world applications such as parking and event tickets.

Transformation

Technology has changed the face of direct operator billing since the days of consumers buying ringtones for their feature phones.

Consumers at one time completed such transactions through premium short message service, or SMS. That method is still applicable in some cases today, but gaming consoles and smart devices brought a simple one-click experience to direct operator billing that consumers are more eager to use.

App stores are just one example of how technology has changed this corner of the payments market.

Vendors that enable direct operator billing in that environment received a boost from Google last week when it announced during its I/O developer conference that it is extending the payment form to tablets as long as the user first has the feature enabled on their smartphone.

"[Direct operator billing] has become the app store's friend, and they are realizing that and rolling it out," Richard Leyland, vice president of marketing communications for direct operator billing provider Bango, told Mobile Payments in an interview.

Bango announced its first integration with Google Play in late 2012 when it enabled Australia-based MNO Telstra to provide direct operator billing to its subscribers.

App stores for Blackberry, Firefox, Google, Microsoft and Mozilla all support direct carrier billing. The most glaring omission from that list is Apple, especially when you consider the iPhone provider's rise in emerging markets where consumers shy away from traditional payment cards and fall into the underbanked or unbanked population.

"Apple has pulled of a trick that is almost unique," Leyland said. "Amazon has as well, and that is to grow a very large business in apps with people who are dependent on just credit and debit cards.

"That's been a barrier for most large merchants with digital content, to be dependent on only reaching banked consumers. Apple and Amazon have been the exception to the rule because they have been able to build consumer bases in the hundreds of billions while demanding credit or debit card details from them."

Leyland believes Apple soon will have to change its approach as it deploys cheaper devices in what is an effort to increase its market share in emerging markets.

"You start reaching limits with credit cards and debit cards, and operator billing has a much broader reach, broader penetration," he said. "Apple's move to penetrating developing markets must surely indicate a change at some point."

Real-world applications

Direct operator billing in the last few years has moved beyond digital content and is encroaching on the physical world in a few ways.

Boku provides direct operator billing for parking in several countries, including the United States. "In general, the vertical of parking is one we're really bullish about," Ray Ramillosa, vice president of marketing at Boku, told Mobile Payments Today in April after the company announced a partnership with sunhill technologies for parking in Europe

Boku also powers direct operator billing for the Sony Entertainment Network, which drives the digital storefront for the PlayStation family of gaming consoles. And that's where the physical and digital lines really begin to blur, at least in the case of one particular game.

Skylanders is a popular video game that interacts with physical pieces consumers can purchase in the PlayStation Store.   

"You have the physical figure that sits on top of the gaming console, and the kid can click in the game, buy it, and it's coming by UPS," Will Hahn, principal analyst for communication service provider strategies at Gartner, told Mobile Payments Today. "So now we've crossed over. It's a physical good, but in a way kind of virtual because the only real application of this physical thing is in this game."

Another area where direct carrier billing is merging with the physical world is event tickets.

In 2012, Turkish wireless company Turkcell and direct carrier biller Onebip enabled mobile ticketing for three international matches involving Turkey's national football team. Some 2,000 fans bought their tickets via SMS text message.

"In the emerging markets, you do tend to see examples of this where they are leading the pack with something that is semi-physical; it's in that gray area," Hahn said.

The question remains whether direct carrier billing is ready for the physical point of sale.

"Our vision has never changed," Boku's Ramillosa said. "We've always seen the progression from virtual goods to digital goods and ultimately to physical goods."

One issue vendors will run into is transaction fees.

When SMS was all the rage, that fee was as high as 50 percent of the purchase price for merchants selling those ringtones. But companies such as Bill to Mobile, Boku and Zong ushered in the direct-to-mobile-bill era, and transaction fees dropped to somewhere between 10 and 20 percent of the sale.

"As the rates go down, it's an easier sell [for merchants to accept direct carrier billing] and it's become a less expensive payment option over time," Ramillosa said.

But it still does not compare with Visa and MasterCard's interchange rates, which are about 2 percent for credit card transactions.

"At the POS, you're at the tip of the knife," Hahn said. "You're fighting Visa, you're fighting MasterCard. [Direct operator billers] would have to bring the margin down to compete; they would have to take them on."

Bango, Boku and others know the money for direct carrier billing still lies in digital content. Consumers no longer rush to stores to buy the latest Kanye West or Lady Gaga song or album as its ready for download at any time. Gamers can rent the latest Captain America movie and stream it from their PlayStation 4 in minutes. Even some comic books are digital-only productions.

Technology has changed direct carrier billing to where it is a game-winning basket for consumers.

"I think we need to be realistic about what is the sweet spot for carrier billing, and I don't think physical goods are a very natural fit necessarily," Leyland said. "The sweet spot for operator billing is for micropayments, the impulse buys."