The ability to pay for goods and services using a mobile device has been around since the early days of the mobile industry. Initially, Premium SMS was used as the primary mechanism for mobile payments, mainly for digital goods such as ringtones and wallpapers. This was followed by WAP billing, which offered advantages such as a more streamlined user experience and the separation of the payment method and delivery channel. Both these mechanisms have enjoyed considerable success in the market and are still widely used today.
Now, however, the area of mobile payments is entering a new era, driven by factors such as the inexorable rise of app stores, the emergence of “freemium” as the pre-eminent monetization model for application providers, and a changing mobile industry landscape where operators are being forced to find new ways of offsetting declining revenues from traditional services. This is leading to increased operator collaboration and the launch of new initiatives such as the Wholesale Applications Community (WAC) and the GSM Association’s (GSMA) OneAPI project.
As a result of these drivers, mobile payments are evolving from a fairly rudimentary mechanism for the one-time purchase of predominately low-value content, towards a fully-fledged payment instrument for a wide variety of both digital and real-world goods and services. From the merchant’s perspective, the key attractions of direct-to-mobile billing are vastly increased reach, extending their addressable market beyond credit card and/or PayPal account holders to virtually any mobile subscriber on the planet, together with increased sales conversion rates resulting from the low-friction, highly convenient nature of direct-to-mobile billing for consumers.
Over the longer term, direct-to-mobile billing has the potential to rival traditional payment methods such as credit cards for the sale of many categories of product – but in order to realize this potential, the stakeholders in the mobile payments ecosystem need to carefully evaluate both the commercial and operational models that they choose, as well as the mobile payments platform that they deploy.
On the commercial and operational side, the emergence of mobile cloud computing over the past couple of years provides an ideal environment for the implementation of direct-to-mobile billing services for merchants such as app stores, developers, content providers and real-world service providers. Mobile cloud service providers, such as Neustar and TNS, specialize in providing simple API-based access to mobile network assets (such as billing, but also other assets like location, messaging, voice call control and customer intelligence) across multiple operators.
Given the fact that cross-operator inter-operability was one of the key success factors for Premium SMS in the early days of mobile payments, the ability for merchants to reach and bill any mobile customer on any network, on any device, anywhere – without having to negotiate with multiple operators or navigate disparate network platforms – will be an essential requirement for the more sophisticated mobile payments services of the future. This is one of the key advantages that the mobile cloud approach provides. In addition, the other capabilities offered by mobile cloud services, such as customer intelligence, allow the same merchants to add differentiating features to their applications, creating incremental monetization opportunities for each of the stakeholders in the value chain.
As well as the emergence of commercial mobile cloud service providers, the mobile industry itself is aligning around the provision of mobile cloud-based services, with an initial focus on direct-to-mobile billing (including in-application billing, one of the main enablers for the freemium business model mentioned earlier). Initiatives such as OneAPI from the GSMA, which launched a commercial mobile cloud service in Canada involving the three main Canadian operators (Rogers, Bell Canada and Telus), and WAC, which is building a centralized global gateway for access to billing and network APIs across multiple operators internationally, both aim to make it easier for merchants to reach and bill any user on any network, regardless of the device they are using.
From a platform perspective, there are several factors to be considered when specifying the required functionality.
First and foremost, the need for consumer protection is key, especially in the light of contemporary issues such as privacy rights, fraud prevention and bill shock (the latter being brought into sharp focus recently with stories about children purchasing hundreds of dollars worth of virtual goods within games from their parents’ mobile devices). Therefore, the platform needs to incorporate functions such as:
- Consent Management – gaining the consumer’s explicit consent to place a charge on their bill (or carry out another operation such as locating that consumer), maintaining consent status for all consumers and providing the consumer with the tools to manage their own consent status across all merchants.
- Appropriate security mechanisms to ensure that the purchaser of goods is correctly authenticated and authorized to make those purchases – this is particularly important for in-application billing. In contrast to the initial application purchase, where the direct-to-mobile payment request normally originates from a trusted server (for example, an application store that has a contractual relationship with the mobile cloud service provider or mobile operator), in-application billing involves an application running on a device, independent from a trusted server, making a direct billing request to the service provider’s payment API. This places additional security requirements on the platform to ensure in-application billing requests are properly authenticated and authorized.
- The ability to give the mobile bill payer control over the amount that can be spent, using spend controls and parent/child hierarchies – this is based on various criteria including type of payment event, time period and purchase category.
Besides consumer protection, other key platform requirements include:
- The ability to perform automated, multi-party settlement and revenue management. With an increasingly complex market landscape, comprising many different types of merchant, mobile cloud providers, specialist payment service providers, industry bodies and the mobile operators themselves, the need to apportion revenues accurately and efficiently across the value chain whilst keeping operational costs to a minimum is critical. Here, the automation of the settlement process is a key factor in providing a direct-to-mobile billing service that scales efficiently to potentially thousands of merchants and partners.
- End-to-end visibility of transactions to a highly granular level, together with the requisite level of information against each transaction, for the efficient management of repudiation and refunds. This is an essential ingredient for direct-to-mobile billing to become a fully-fledged payment instrument that can provide a realistic alternative to credit cards.
- Flexibility to support multiple payment types and business models, including one-time purchases, in-application billing, subscriptions / mandates and stored value / loyalty schemes. Also, the ability to support flexible price points (as opposed to the fixed price points commonly provided by older mechanisms such as Premium SMS) is key.
- The ability to charge merchants and partners for the use of other network assets, in conjunction with direct-to-mobile billing, providing service providers with incremental monetization opportunities and the flexibility to design tailored business models for different types of merchant.
- Features that minimize revenue leakage compared with non-transactional payment methods such as premium SMS, including real-time authorization / credit checking, and transaction traceability to reduce refunds.
In summary, mobile payments are set to enter an exciting new era, and the emergence of mobile cloud computing presents an ideal platform upon which the next generation of mobile payments services can be built. As long as the right commercial, operational and technical choices are made, direct-to-mobile billing has the potential to surpass established payment methods such as credit cards as the pre-eminent payment instrument for the next wave of applications, content and real-world services globally.
Michael Crossey is the vice president of marketing for Aepona, and brings 18 years of telecom experience to the company. Prior to joining Aepona in 2006, he was the vice president of marketing and business development at Transmode. Michael also spent 14 years with Nortel in a series of management positions. He holds Bachelor of Engineering and Master of Science degrees from Queen's University, Belfast.