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'90% of people would be willing to pay extra for the convenience of making m-commerce purchases.' - MORI research poll

Comment: New (and old?) ways to pay for mobile content?
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(18 August 2005)

Mobile payment initiatives such as Simpay - and so far, even some operators' own aspirations to become banks - have failed miserably to create a payment standard for mobile commerce. The shortcomings of this approach, where operators control and manage the financial processing of the content that passes through their networks, have been made even more apparent with Simpay's demise. Mary Carol Harris Vice President, Marketing Upaid looks at alternative payment methods for mobile content.

To date, the payment methods for mobile commerce, including items such as ring tones, wall papers and adult content, has been largely confined to reverse billing to the mobile phone bill itself. While this business is worth an estimated $10 billion annually, content providers and aggregators around the world are beginning to question this model of billing for content.

The current framework where operators bill their users for the digital content is grossly limiting to both the content provider's business and the industry itself. Operators currently charge around 40 to 60 per cent commission, although revenue generated is insignificant compared to their core business. This can only contribute to content providers and aggregators exploring radical alternatives. In fact, at these rates, billing for content to the monthly mobile bill or to a prepaid mobile account is, without a doubt, the most expensive billing and cash collection service in existence.

No Guarantees

But, not only is the percentage operators take being called into question, it is also the lack of any payment guarantee for the content provided. Even the founders of Simpay recognised early on that the industry would no longer accept an arrangement where content providers hand over a 'carte blanche' to operators with no guarantee of payment for the products sold to the consumer. Part of Simpay's value proposition to content providers and the wider merchant community it was in the process of recruiting was the essential guarantee of payment, but this of course was in exchange for the same cut that operators are currently taking under reverse billing and premium SMS arrangements. The failure of Simpay has created an even greater need for a solution to this problem.

Low Value Sales

It is interesting to consider whether the conventional billing methods have restricted the 'products' and value that can reasonably be delivered to the mobile phones. Operator-managed billing for content has limits. Many operators impose a ceiling on the amount that can be billed for content, particularly for prepaid mobile accounts. This is partly driven by a messianic need to protect customers and party by the desire to ensure that enough credit remains on users' accounts for their own services. If a young customer spends all available credit on content where operator margins are much lower than airtime usage, this spending pattern restricts the operator's own profits.

But for many, the current billing arrangement is not only stifling their own businesses but also the potentially exponential growth of an already multi-billion dollar industry. In general, most content that may be safely billed to the mobile bill is limited to below $10 in value. New, alternative billing mechanisms could very well pave the way for higher value content without the risks associated with the current billing arrangements, creating new opportunities and higher, premium digital services.

Open Up The Oyster

So what are the alternatives? New models being implemented involve a closer relationship between content owners and end-users. In many territories, the role of a 'central registration authority' for content distributors and aggregators is being proposed. With this role, a centralised registration entity manages a registration engine for certain specialist areas of content, enabling users to register payment information to access digital goods from multiple providers. Users, in turn, pay for the content by authorising payments to be taken from their registered payment instrument, which could be a bank account, debit or credit card or a myriad of other payment tools including prepaid cards, such as the Oyster card. This model is already being used by numerous merchants around the world for recurring payments such as Amazon, Expedia and others. It is also used by Visa for its Upaid-operated Visa Mobile Service, currently available in a growing number of countries including Jordan, Morocco and Serbia.

Another potentially lucrative alternative to operator-managed billing for content is the offering of a separate, prepaid virtual account for digital goods. In this model, users buy credit for the content they access regularly on a prepaid basis with the purchases decremented at each request, much in the same way that prepaid, or 'gift' cards are used to buy anything from coffee to groceries. The recharge, or top-up, of these accounts is then enabled through several channels, including SMS, IVR or WAP via the handset, from a pre-registered debit or credit card. This model offers content providers the advantages of upfront payment for goods and services, thereby meeting the vital business objectives of guarantee of payment and higher margins on content. It also puts content providers in an ideal position to offer incentives and advantages to users who elect to pay using the providers own prepaid, stored value payment mechanism.

These initiatives are not the fantasies of report writers and creative product managers but are actual projects being examined around the world. One major content provider from Southern Europe currently considering the prepaid stored value account option complains of furnishing up to 300 euros worth of content monthly for some users but receiving payment (if at all) via the operator some three to four months later. Another international aggregator with operations across four continents is closely examining the pros and cons of managing a registration centre for its network of content providers in order to ensure higher margins on the content sold.

Power Shift Coming

There is no denying that operators could have a major, pivotal role to play in developing mobile content payment services. But the dynamics of the industry are driving new billing models and relationships - models and relationships that restore a balance to who gets what in the content game.
Those of us in the m-commerce sector are seeing a new mood of cooperation among operators. Previously, there was undoubtedly some negativity to any party deemed as trampling on operators' 'real estate'. Maybe that is changing. Perhaps it might be smart for operators to have a closer look at why organisations such as Visa are turning to mobile commerce specialists to make things happen quickly, efficiently and economically - and much more so than their own efforts to date.

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