Carrier billing has gone from a market that appeared in terminal decline seven years ago to one that has managed to reinvent itself for the new digital age. Global carrier billing revenue is exploding, largely driven by demand from tech and media giants such as Apple, Google, Microsoft, and Netflix – mostly for app store billing and strategic telco-OTT partnerships.
Despite operating in an increasingly competitive digital payments space, carrier billing will see revenue grow 1.6 times over the next five years, from $49bn in 2019 to $79bn in 2024, according to Omdia's latest forecast.
Over a quarter of revenue will be derived from bundling by the end of the forecast period, in great measure thanks to 5G and the new telco-OTT partnership opportunities it will enable in areas such as live-sports streaming and cloud gaming.
Yet, there are many aspects that make carrier billing, or DCB, a far from ideal payment mechanism:
Its fees – usually charged as a revenue share – are extremely uncompetitive.
There are many regulatory barriers limiting what it can be used for.
Carriers often seem reluctant passengers in what is mostly a merchant and aggregator driven market.
Carriers have certainly done a dismal job of marketing this rather ubiquitous alternative form of payments. And it does not help that, to remain relevant, carrier billing is having to let itself to be driven down on price, narrowing margins for carriers.
For merchants, however, the attraction is clear:
In countries with low financial inclusion, carrier billing is often the most universally available way of making remote digital payments.
It is also the most seamless way of paying for things on mobile phones.
For premium-service OTTs, partnering with carriers offers the cheapest and swiftest way of conquering new markets, particularly in the developing world.
But the digital payments space is a fast moving one and other alternative payments, such as digital wallets and cryptocurrencies, could emerge to offer equally convenient and ubiquitous, but much cheaper, forms of billing.
In China, digital wallets Alipay and WeChat Pay have in recent years swept aside carrier billing as the preferred billing method on app stores, turning what was projected as a prosperous carrier billing market into a declining one. Apple, for example, which has been aggressively rolling out DCB over the past four years, will apparently not be doing so in China because of Alipay's and WeChat Pay's dominance there. At the same time, if Facebook manages to get its cryptocurrency Libra off the ground, despite current regulatory hostility, it could also become a formidable competitor to DCB.
Yet, most of these alternatives are largely geared at the banked rather than unbanked. In China, for example, users must possess a bank account to open an Alipay or WeChat Pay account. But with China's banking penetration now at more than 80%, that is not much of a barrier to adoption. It is a barrier, however, in most other parts of the developing world.
Of course, some mobile wallets – or, more precisely, mobile-money wallets – are firmly targeted at the unbanked. These are mostly owned by carriers and, in sub-Saharan Africa, they are becoming the main way of connecting app stores to alternative payments – to what is essentially another form of carrier-billed payments beyond DCB.
There is no doubt that carrier billing will continue to play an important supporting role in digital media sales, as digital media companies penetrate deeper into emerging markets in search of growth, to offset saturation in mature markets.
On the physical goods and services front, however, carrier billing has barely scratched the surface, because of mostly insurmountable commercial and regulatory barriers. Realistically, it will at most only ever be able to operate at the margins of that market, as it currently does in Japan, South Korea and, to a lesser extent, Europe.
Carriers, meanwhile, will not get rich from DCB. It barely moves the needle in terms of overall telco revenue. But carriers' direct billing relationship with billions of mobile, fixed-broadband, and pay-TV subscribers around the world puts them at a huge strategic advantage vis-à-vis OTTs, especially for bundling partnerships where the indirect benefits can be so much greater for carriers than any direct revenue they might make from billing.