Wednesday, 22 August 2018

Direct Carrier Billing (DCB) – Transforming the Telco Industry

Direct Carrier Billing (DCB) - also known as ‘Direct Operator Billing’ enables telco service providers to charge mobile phone users directly for the use of additional services and other purchases made using their smartphones. Research suggests that there are currently over 6.8 billion* active mobile phone accounts globally, compare that with the 2.15 billionꭞ credit card accounts, and it is easy to see why mobile payments are on the up and up. The great benefit of DCB is that users can make purchases without having to enter their credit or debit card details.

In 2017, Guillermo Escofet from Ovum estimated that the global mobile carrier billing (including PSMS) market would grow to $24.7bn by 2019. Today analysts are forecasting that the Direct Carrier Billing Market will grow at a CAGR of 8.88% during the period 2018-2022. Much of this growth has been attributed to the increasing popularity of cryptocurrencies, as well as merchants like Google, Apple, and Amazon who seem to have grasped DCB as an opportunity to offer their products and services more widely, through a friendlier, faster and secure app. Quite a transformation from the previously more awkward experience of PSMS or credit card usage. In his Global Carrier-Billing Forecast report Guillermo predicted that:

Full transactional revenue derived from direct carrier billing (DCB) will grow at a far faster pace than that derived from mobile operators’ core services (data, SMS, and voice). It will also overtake SMS revenue in six years time.

As an early adopter of DCB, Google has been working extensively with carriers, like 3, EE, 02 and Vodafone in the UK, to drive greater market share. Although a little behind Google, Apple have rolled out DCB through EE and 02 for their iTunes and App Store. Amazon has also adopted DCB as a preferred payment method and smartphone users are now able to purchase Amazon Prime Video through the use of DCB, in addition, the growth of DCB is being fuelled by bundled content providers such as Spotify and Netflix.

Although premium SMS has grown in popularity over the last 8 years, its market share is now being heavily eroded by DCB. When comparing PSMS with DCB the telco's preferred choice is likely to be PMSM as revenue shares are higher, but DCB is rapidly becoming the preferred choice for consumers because it supports the demands of regulatory compliance, plus the fact that PSMS was previously tainted with 'scams' and 'bad practices'.

This change in billing and purchase strategy means that many of today’s service providers are now looking to migrate their customers to DCB. But what does that mean for the customer?

Improved Customer Experience

DCB gives customers a true one-click experience for their mobile transactions – so there is no need to send a premium SMS message to a shortcode. DCB also offers customers transparency via their bill and enables customers to make purchases in seconds without the need to fill in forms or provide card details. As far back as 2013, John Abrahams from Analysys Mason suggested that DCB was not only giving communication service providers (CSPs) a share of the mobile payment market but that the conversion rates for purchases using DCB were significantly higher. DCB would also appear to be supportive of the self-service model clearly being preferred by today's end users.

Improved Security

We all know someone who has had some kind of hacking experience, their credit card, their bank card and in some cases their whole identity. This has made people much more reluctant to provide credit card or bank card details online when making any type of purchase. Service providers who are offering DCB to customers may be enabling them with higher levels of security, which could be true as, unlike Paypal, the user does not need to login to use DCB. Because DCB means that users do not need to enter payment details when using that as a payment option, the requirement for operators to achieve compliance with PCI DSS is negated.

Banking for the Unbanked

For many individuals who do not have bank accounts or credit cards, DCB is delivering purchasing power directly into their hands. Which is not only good news for customers but fantastic news for vendors. However DCB is not the only service giving banking to the unbanked - there is M-PESA, a mobile phone-based money transfer system. One that was launched by Vodafone for Safaricom and Vodacom in Kenya and Tanzania almost 10 years ago. Like DCB, M-PESA has been credited with giving millions access to branchless banking and helping to cut crime rates in cash-based societies.

Opening the Market for Over The Top (OTT) Services Providers

OTT (or over-the-top) service providers such as Netflix/YouTube etc use operator networks to deliver digital content via the internet. As customer demand for mobile internet services grows, operators are having to accommodate a growing number of OTT providers who use their networks to deliver their services and then bill directly to end customers, in effect the operator has little or no control over these OTT services. The best option for operators is a partnership with OTT providers, however, this does not give control to the operators and the partnership must be beneficial for all parties.

Because of its ease of use, we are likely to see many more operators leveraging direct carrier billing as a foundation for their business transformation into ‘digital service providers’. The likely driver of this being the insatiable demand by end users for data and Internet services (such as Netflix and Spotify)  well as consumers reducing levels of tolerance to online advertising. From an operator perspective, DCB could be the next lucrative revenue generation opportunity provided a full due diligence is undertaken prior to any commercials.

DCB also provides a mechanism for service providers to process micropayments, which are small amounts of money transfers by customers used to purchase online content/products or services. Much like the rapid adoption of the contactless payment for small amounts (under £30 in the UK), micropayments are now commonplace in the world of e-commerce. For the merchant, this process is easy, seamless and with no fixed costs per transaction, it makes them much cheaper than most alternatives for small payments.

*6.8 billion mobile phone users – source International Telecommunications Union
ꭞ2.15 billion credit cards – source Nilson Report

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