Direct carrier billing allows users to add the value of a purchase directly to their mobile bills. For now, it’s largely used for digital goods like tokens that can be purchased within gaming apps, but it could ultimately catch on for other digital and physical purchases.
In a recent chart, we looked at the potential for direct carrier billing to take off as a method of payment in emerging markets where credit card penetration is low. Fortumo is one of the companies that is taking advantage of this opportunity.
Fortumo was founded back in 2007 in Estonia and has since expanded with offices in San Francisco, Beijing, and India. The company also has impressive reach, offering direct carrier billing in 80 countries, in partnership with over 300 operators.
We recently spoke with Martin Koppel, Fortumo’s co-founder and COO, and Mattias Liivak, head of marketing and PR, to gain an insider’s view of carrier billing.
This Q&A has been edited for clarity and brevity.
BI Intelligence: What’s the difference between direct carrier billing and premium SMS?
[Editor’s note: Premium SMS is a text message-based payments system that you may remember from buying ringtones in the late ’90s.]
Koppel: Direct carrier billing is often connected to the same billing infrastructure as premium SMS solutions on the carrier side, but it uses a different technology. Direct carrier billing is done via data connection versus text messages, as in premium SMS. Direct carrier billing also has a more convenient checkout flow than premium SMS.
BI Intelligence: Which does Fortumo offer?
Koppel: Our role is reducing time to market for platform providers and developers. We are connecting different billing technology from 300 mobile operators and there are significant differences between carriers in terms of technology. So, for example, in developing countries we offer premium SMS-based solutions while in developed economies it’s often direct carrier billing.
Liivak: One thing to add is that premium SMS works in cases where the user doesn’t have data connectivity. So it may not be an issue in the U.S. or the U.K., but if we go to Nigeria, Brazil, or India, users may not have a data connection. Text messages always work, which means that a user is always able to make a payment. So we use a mix and match of the two solutions.
BI Intelligence: How big is transaction volume in the markets that direct carrier billing companies are going after?
Koppel: Transaction volumes are going up and one reason is that the verticals are changing. Mobile purchases are shifting from virtual goods to digital goods. Different market studies show that the approximate market was $US7 billion for virtual goods and games and will grow to $US25 billion in a couple of years. Adding digital goods, we are seeing double-digit growth — transaction volume will be roughly $US270 billion by 2015.
[Editor’s note: Virtual goods can only be used in games and apps. Digital goods are things like MP3s or e-books.]
BI Intelligence: How many people have access to your payment option?
Koppel: Fortumo is available on a couple of thousand apps. So, our total audience would be roughly 5.1 billion. Just on mobile apps about 700 million people.
BI Intelligence: What sorts of customers do you work with?
Koppel: We work directly with app and game developers, but also with different platforms and ecosystems — providing billing for the Barnes & Noble Nook App Store and providing the billing technology and connections for different handset manufactures, whether they are China-based or Europe-based, for example.
BI Intelligence: What markets is Fortumo focusing on?
Koppel: We’re mostly focusing on emerging markets. Companies like Facebook or Spotify can monetise their goods online or on mobile in the U.S., U.K., and in Western Europe in general, because people have credit cards. But they are having problems in Latin America, Southeast Asia, and the Middle East. Developers are having a hard time monetizing their goods, because there aren’t enough people who are able to buy. They simply don’t have a payment method.
BI Intelligence: What per cent of your revenue comes from emerging markets?
Koppel: Roughly 65% to 70% of our revenue comes from emerging markets — Southeast Asia, Latin America, the Middle East, Africa, and Eastern Europe.
BI Intelligence: What kind of user spending in emerging markets are you seeing?
Koppel: Interestingly, for countries like Vietnam, Turkey, and Thailand average quarterly revenue per paying user is higher than you would expect. In the U.S. and U.K., average quarterly revenue per paying user is around $US7 to $US9. In our case, in countries like Turkey and Thailand — roughly $US15. And in Taiwan, it’s roughly $US20. The assumption is that people in these types of countries would be spending less on average, but in fact, results are mixed.
BI Intelligence: Where is Fortumo focusing in terms of technology?
Koppel: As far as technology we are focusing on mobile because media and Internet consumption have moved to mobile and there is significant growth in mobile in emerging markets. Of course, we have the other side of the business where we offer billing on a regular browser on PCs.
BI Intelligence: I’ve heard that there are significant limitations on how much a user can spend using carrier billing. Are carriers talking about extending more credit to their subscribers?
Koppel: Yes, they are doing that constantly. We are seeing a shift in trends. Carriers in emerging markets are understanding that they are not only in the voice and data business, but that payments are vital. They are starting to change their whole economics. Some carriers are already doing pilots with selling physical goods where the ticket values are much higher. A good example — In South Korea, which is way ahead of others, people can charge $US300 to their phone bill with one shot.
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