Users are increasingly choosing dead simple SMS mobile payments for micro-transactions on social network applications and gaming sites (it fills the void while they wait for more direct options), but super-high transaction fees are limiting growth.
The problem is that legacy transactions - specifically scams that give users a “free” ring tone with the fine print mentioning a monthly charge as high as $20 - have brought in so much cash to the carriers that they’ve gotten used to taking 50% or more of the total payment in fees. For the market to grow to encompass legitimate transactions, those fees have to drop dramatically. For that to happen, the social networks need to get involved directly in carrier negotiations.
Two companies, both headquartered in Europe, are already targeting mobile payments for apps - Mobillcash (UK) and Zong (Switzerland).
When you buy a virtual shotgun on Mobwars, for example (and they are selling a lot of them, up to $1 million per month) you have to pay real cash. You can choose to pay via a number of services (Facebook doesn’t offer a direct payment solution yet), including either Mobillcash or Zong.
If you choose Zong, you enter your phone number on the site, get a text message with a four digit code, enter the code on the site and you’re done. It’s by far the easiest way to charge a transaction online outside of Amazon one-click.
Zong’s fees aren’t transparent, but Mobillcash’s are. Mobillcash has a clunkier interface (you have to choose your carrier and go through extra steps), but they show what their fees are because to get, say, $1 into the Facebook app you have to pay $1.50 on most carriers. That implies a 33% transaction cost, almost all of which goes to the carrier. Many of Mobillcash’s payments are way beyond 33%. Zong says they pay an average of a 40% transaction fee to U.S. carriers.
Those transaction fees are severely limiting the size of the market. Lots of merchants and application developers would love to take mobile payments, but paying 40% or more of the transaction to the carriers is a non-starter.
Zong argues that the fees are actually much lower than they seem because conversion rates (when chance that money will change hands once a payment button is pressed) are more than 50%. If that seems low, compare it to PayPal conversion rates that are reported to be a fraction of that.
Regardless, though, any merchant selling an item with actual marginal cost (virtual items are by definition free to produce, so higher payment fees can be tolerated) aren’t going to allow mobile payments via SMS. If the carriers were to lower those fees (or if they were forced to by market forces or the government), a very rich ecosystem could blossom, and the carriers would get the majority of the value created.
What Happens If Carriers Ignore the Opportunity
Chances are the carriers won’t lower their exorbitant payment fees anytime soon. What I’m guessing will happen is that services like Zong and MobillCash, as they add valuable users who like to pay via SMS, will simply offer to move those users to credit card payments. Users still pay by just entering in their phone number and then typing in a 4 digit code they receive via SMS, but the charge would go to their credit card instead of their phone. The difference in fees is so large that customers can be offered a very large incentive to simply store their credit card and use that instead of having the charge go to their phone bill. And checking out is still much, much simpler than typing in your name, address and credit card details.
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Also, you don’t need to worry about “chargeback” with mobile payments. Using PayPal, if a customer files a chargeback claim for a micro-transaction of $1, it can cost the seller around $30 in fees :/
(It’s notoriously difficult to dispute chargebacks for digitally delivered goods since it’s near impossible to provide proof of delivery.)
LOL LOL LOL LOL LOL LOL LOL !!!
chargebacks can be up to 90% on some products. That’s when the carriers turn around and say sorry, we aren’t sending you the money after all 90 days later.
It’s going to be an uphill battle in the US. We can’t even get decent SMS rates. When it does succeed I can only hope that customer support is taken care of by the transaction company because carrier support gives me migraines.
SMS will die soon.
As a mobile applications integrator in the UK I can confirm that the carriers are unlikely to reduce their transaction fees anytime soon.
We have been facing this problem here for many years (The UK sms market is mature by comparison to the US) It is oligopolistic behaviour by the networks. My guess is that they have worked out that it is more profitable to have fewer transactions at a higher rate than taking a cut on many smaller ones.
I agree that the mobile network would make the perfect micro payment system and by the number of enquiries we get for this type of use I would guess I am not alone.
I am surprised that Visa/Mastercard have not come up with viable alternative yet but again micropayments do not seem overly attractive to them. Perhaps the the admin costs per transaction are just too high. Having said that the Apple App store and Itunes seem pretty successful to me. I use them on my iphone almost daily.
Richard, they ARE testing something already. In particular VISA is testing a version with a card verification code transmitted by SMS in Asia right now.
Several important additions to the post:
1. People who are saying that there is no chargebacks in PSMS payments ARE LYING. There are chargebacks, there are fines, there are sums that need to be retained with the carrier.
2. There are rules DEMANDING an authorization of billing from the customer’s account through the PSMS mechanism. Services that allow billing without this authorization - are a dirty hack of the system and will be closed by carriers very soon. Yes, I mean Zong in particular. Zong is a dirty hack, because it bills the users account WITHOUT a customer authorization (typically made by an outgoing SMS to the short number).
3. In general, there’ve been so much abuse of the PSMS billing mechanism by so called ‘ring-tone sellers’, porn web-sites etc. etc. that it is ‘dirty’ enough already in the eyes of the customers. New merchants offering virtual junk at a sky-high prices will just add to the frustration.
Welcome to the world of SMS payments unknown to the TechCrunch writers.
Alex: Zong is NOT going through a dirty hack!! The PIN code validation has been used in the US for years and is approved by carriers. Making a process user friendly and providing great user experience is a core focus of Zong - also, we’ve been around for over 8 years. Believe me, we’re not into “hacks”…
Dear David,
Accepting an SMS and then surrendering the code received in the SMS to you. DOES NOT CONSTITUTE AN AGREEMENT TO BE BILLED from the carrier perspective.
I repeat: No matter how you return this code to the carrier through your own carrier, pretending that you have received it from the handset and using the roaming agreement (people did it in the past, it’s not even new) or otherwise, from the carrier perspective, you HAVE NOT obtained a confirmation from the customer.
THIS IS A DIRTY HACK !
As soon as the carriers notice you (you need to work better on the adoption) - they will block your loophole as they did it with the past hacks.
Actually Alex you misinformed. Zong complies with the carrier guidelines for PSMS services. PIN confirmation is a completely legitimate method of mobile billing authorization. After all of the abuse and lawsuits in the past few years over PSMS abuse, there is now a highly integrated process for PSMS billing here in the US so the carriers surely are aware of Zong. I recommend you read http://www.mmaglobal.com/bestpractices.pdf to familiarize yourself before making outlandish statments.
To be clear… It is not the Zongs of the world that are abusers of PSMS but it actually has been mostly a small handful of CPA marketing companies. They create the ‘offers’ that entise kids with “a free ringtone” and hide the premium monthly fee in the terms and conditions in small text at the bottom. They passed these numbers off as legitimate subscriptions for the quick CPA buck. Since then, Carriers and Regulators have cracked down hard on these practices.
Why not use payforit , seems to work fine
I don’t believe zong is one of the dodgy psms companies however you can buy products through zong which breach the us psms guidelines (which state that only products consumed on the cell phone can be billed for)
P.S. And I don’t mean to say anything bad about MobillCash that does it RIGHT. Glyn is a wonderful man and a great leader of the company, more knowledgeable than anybody else in the industry for today.
Could you get rid off this spammy chinese guy?
FFS
Well, my company operates in the mobile sector. However, I think we’ll have to wait another year or two to really see the potential in phone payments. People are really picky (as far as in Italy) about how much money they have in their phones, and not many like to to see their phone credit go down…they rather pay cash to buy certain things than see their phone credit go down.
what is needed is google to enter the market. They already have the tech for for sms and the payment services of checkout they just need to match the 2 up.
This article has actually opened my eyes to other methods of getting payment. thanks
http://www.facepink.com - the free facebook sex social netwok
“Two companies, both headquartered in Europe, are already targeting mobile payments for apps”
Wait, hang on, where?! Europe? Hmm, I thought nothing innovative came from there Michael?
{oh, and chinese spammer, bugger off}
Getjar (another European company) is also building a payments platform for its applications store
Getjar rocks
@Alex : “People who are saying that there is no chargebacks in PSMS payments ARE LYING”.
Chargebacks don’t apply to merchants, with all payment companies.
I work for Allopass.com, which created phone and mobile payment in France 7 years ago. We secured particular agreements with carriers and we NEVER APPLY CHARGEBACK to merchants. There is no fine either.
Similarly, your knowledge of the rules demanding confirmation doesn’t match reality. The situation is different in each country. Sometimes a confirmation is required, sometimes not.
Dear friend,
Did you notice that Mr. David Marcus didn’t care to comment on this subject? You probably wonder why? Here’s why:
“In order to protect itself from massive refunds and costs from regulators or legislators, in the event of fraudulent services or advertising, Echovox will conduct random due diligence on Client’s services and advertising practices. Echovox may, at its sole discretion, suspend any service and retain outstanding payments indefinitely, if there are any doubts about the legitimacy of the service or its promotion. Furthermore, Echovox will issue invoices to Client for any and all amounts charged to Echovox as a result of the Client’s services, whether this be for payments to Customers, fines and all related costs, and the Client agrees to pay all such invoices. This includes any service that operates contrary to the regulations of the country or operator codes of conduct or legislation and any service that does not fully and clearly inform Customers of the costs of the service and, in the case of subscription services, any service that does not clearly inform the user about deregistration procedures.”
It’s important to read the TOS of the services you are planning to consume.
I am not sure why Michael refuses to take a look at this mobile payment platform - http://www.Autositebill.com. which offers merchants an opportunity to accept payments online from a mobile paying customer that has an account through http://www.mWorldPay.com.
I have mentioned it a couple of times here that http://www.Autositebill.com maximum charge to a merchant is 1% regardless of the amount. Therefore for merchant wanting to accept micropayments online this is ideal because for a selling goods/service to a customer at a price of say $10, autositebill charge would be $0.10. This is most cost effective mobile payment solution available to merchants. Anyone wants to try it out should contact the company that owns the platform. The company is TreasureCom Financial Holdings.
Jose,
“an opportunity to accept payments online from a mobile paying customer that has an account through [mworldpay]”
And you think this is a simple solution? Still too much friction to make a payment. The abandonment rates would simply be too large to justify the implementation costs. Most people have paypal and credit cards and asking them to signup up for yet_another_payment_provider is just not viable.
a) Carriers won’t lower their entitlement. You are using THEIR infrastructure to bill THEIR customers
b) US Carriers will not support these types of transactions anytime soon. In the UK, it’s different, you can pay for almost anything, including parking.
C) Social Networks will never get involved unless they are collecting the payments themselves from carriers and distributing a rev share to developers. That’s not the social network model however (at least for the networks that may actually have some negotiating power).
I heard about this $20 for each lead of a ring tone. Quite high but somewhat interesting.
In Korea, the fees are around 10-15% instead of 45-50%. Perhaps unsurprisingly, mobile now accounts for the large majority of online game payments in Korea.
US carriers are positioning themselves to be cut out of this market by prepaid cards which have lower fee structures but similar benefits to the game publisher. Unless the carriers act soon, they can expect this situation to become permanent as the US market matures.
We created a group fully devoted to game payments on LinkedIn. Maybe you’d consider joining and telling the group members more about this?
http://www.linkedin.com/e/gis/1192457
Also, mobile payment method in Korea does not use PSMS for payment processing. They have more of direct link to carriers, and uses SMS for one-time-passcode and confirmation only. So, all payments are processed reliably and guaranteed.
I believe mobile payment via PSMS is not sustainable and will have to change. Merchants cannot get behind it due to high fee structure and unreliability of PSMS.
And Korean mobile payment market is dominated by two companies. Danal has the largest market share, followed by Mobilians.
I believe Danal has an office in the Silicon Valley and preparing to launch in the US.
Josh,
a) Carriers have been lowering their entitlement in most developed mobile ecosystems. (comparing Indonesian 70% in countries like Sweden)
b) These services are based on standard Premium SMS (MT or MO) and are widely supported by the US Carriers.
c) Social network could potentially gain notable leverage when dealing with operators, mainly because of their potential to generate huge volumes. This in turn could be turned into their margin in the payments.
I’ve been looking into these services, and its not really rocket science. Anyway, there are at least two important ones missing from the list (also based in Europe):
http://www.paymo.com/
http://www.onebip.com/
You forgot the oldest and the best: http://www.DaoPay.com
Mike- to your statement: “Zong’s fees aren’t transparent, but Mobillcash’s are”. This is not true. When Zong shows you a $1 charge, you pay $1, and that’s what should matter to consumers. What you see is what you get!
The main difference is that with Mobillcash, most publishers are passing on the fees to the consumers. In some cases when you want to pay 25¢, you find out you’re going to pay $1.50 at the very end of the process! Call that transparent?
Two other points worth noting. We’re live with over 67 carriers in 13 countries, over 75 in 15 countries later this month, and unlike any other player in this market, 80% of our carrier connectivity is direct, this impacts fee structure, reliability and responsiveness of the whole process. Also, we’re now based in Redwood City, CA.
@ David Marcus: I believe what the article author is getting at is that your competitor appears to show how much you have to pay in order to get X amount of value through the pipe. In other words, if the consumer pays $1 but 50% is eaten by fees then only 50 cents gets through the pipe to the merchant. Presumably, the merchant will then only provide the consumer with 50 cents worth of product/service.
To be honest, both hiding the fee and showing it just create different kinds of bad user experiences. The core of the mobile model in the West remains broken. If the fees were only 10% then most merchants would probably be comfortable eating them. But @ 50% the merchant cannot afford to and passes it on to the consumer in one way or another - ie. the consumer and the merchant both lose.
Kim: totally agree. In Japan, carriers only take 10% and carved a much bigger market opportunity for themselves. I’m a firm believer that fees will reach these levels here in the US and in Europe, but for that to happen, the ringtones subscription market needs to collapse first.
Agreed. But I believe fees will go down here in the US and in Europe. In Japan, fees are 10% and the carriers carved themselves a much bigger piece of the action and built a sustainable business model. For that to happen here though, the ringtones subscription market needs to collapse first.
Why people would rather buy a virtual shotgun for a dollar rather than give that money to charity I’m not sure…
Why people would rather spend a minute commenting to virtual strangers than give that time to charity I’m not sure…
you must
If you want to use micro payments in Premium Rate services in Europe (under 1 Euro 50) a ‘premium drop call’ (pay per call number) beats premium SMS kick backs in 9 out of 10 countries. If you have reacehd a steady volume (>150K per month per country) deal with a 1ST instead of these companies)
@ James C: So, you don’t watch movies then, right? Or listen to music that isn’t played live. Right?
I mean seriously. I’m over the holier-than-thou attitude that people front over games and virtual goods. A game is an entertainment choice like movies or music. If someone wants to enhance their entertainment experience by buying a virtual shotgun then so be it. Asking that they “give the money to charity” is just poser bullshit.
If you want to use micro payments in Premium Rate services in Europe (under 1 Euro 50) a ‘premium drop call’ (pay per call) beats premium SMS kick backs in 9 out of 10 countries. If you have reached a steady volume (>150K per month per country SMS and/or Voice) deal with a tier one connection instead of a broker like Zong or MobillCash
Half a dozen times you write “… (…) …”. Just integrate the content within the parentheses into the article. It will make for a much better read.
Wow! What a juicy discussion.
Yes. Mobile carrier fees are the highest in the world right at home in the US.
Yes. It is their network used and their customers billed.
No. this will not change until there is enough traction and volume for the market to negotiate pricing rather than resistance and complaint over the cut they keep.
In principle it’s annoying.
Mathematically we have clients that earn 250% more revenue from mobile billing with no CC cannibalization and AFTER the carriers keep their piece.
An ALTERNATIVE is phone line billing (I mean to land lines). Fees are less than half of what mobile carriers keep, price points are higher and payouts are very attractive. Go to http://paymentpin.com/phone_line_billing.php
for more info.
And … Chinese spammer please go away. We have enough plastic Buddha’s already.
Another way around this is to go with thin-client membership services.
Mpayy members can access their accounts through Mpayy.com, mobile.Mpayy.com, or through the Mpayy widget on Facebook or MySpace.
Previous membership is required, which is the one benefit that the cell-phone billers have.
However, for a secure, payment application accessible through the phone, Mpayy is the way to go. All data is housed at US Bank, and merchants face 2.0% + $0.20 fees at the high end.
Another critical consideration is the Accounts Payable period. Merchants are 3 steps removed from the transaction. The cell phone carriers collect on the bill, and then pay the payment company who then pays the merchant. This can take up to 6 months vs. a couple of days with Mpayy.
I wrote about this a while back - http://mpayy.blogspot.com/2008.....e-old.html
I realize you are biased, but ask yourself who really needs something like you describe. I have:
-Visa Debit (use it for in-store/at pump>> get rewards)
-AMEX (use it for online)
-Cash (use it for in-store, small ticket/P2P)
-Checks (use it for large payments)
What problem does mPay solve not previously addressed? Paypal is more widespread and costs the same for merchants (I don’t need paypal myself).
There is another alternative which has not been discussed yet at all in this thread: web-based billing done thru the mobile browser.
This will be the entry point of paypal and their likes into the mobile payment market.
OK, this approach has the disadvantage that the user must register with a service other than his carrier and log himself into a shop. But as mentioned earlier, discussing the credit card solution, the advantage of offering the same service at a much lower price is a strong incentive.
A big European player in this is e.g. Firstgate.
And I think that these players are very interested to exploit the opportunity which the operators leave wide open to them.
My personal opininon: the carriers will never get it. 6 or 7 years ago, I already had discussions with carriers and asked them how they can justify to take 60-70% of the value (at the time) for doing next to nothing.
The answer always boiled down to the famous answer to the “Why do the chicken cross the road” question: BECAUSE THEY CAN !
The consumer (and, of course, mobile services & content providers) can only hope that alternative technical approaches will very quickly eliminate the stranglehold that the carriers currently still enjoy to a large extent in this market.
The good thing: consumer habits also start to change and I believe that the distinction between “mobile” and “internet” will quickly disappear in the enduser perception - increasing the willingness to transfer learned behaviour from the web to the mobile. And on the internet, you don’t pay your ISP for being able to purchase a book on Amazon…. but you do pay, e.g. for virtual items, games downloads etc. that you consider worth your money.
A last remarkable note on the operator behaviour: two arguments I heard repeatedly when carriers explained their behaviour on the payment front:
(1) banking regulations
(2) fear of bill shock
Depending on the country, banking regulations can actually impede the carrier to advance too far into the lands of mobile payment - if they do too much debiting / crediting for services and products other than their core telco services, they may actually become a target for the lawyers of local banks.
But more often, the fear of “bill shock” was cited to me. This means the fear that too high a total on the carrier bill will actually “stun” the enduser in using less of the carriers core services. The funny thing: the carrier fear to see appear high totals on their customer bills for REAL services (that is: where the enduser has received his money’s worth). But they are much less frightened if some third party charges the enduser horrific amounts without giving anything in return (e.g. ringtone subscriptions). Any attempt to try to convince them that lower payment margins would naturally attract better quality content left them totally unimpressed. Quite telling when you want to know where the enduser is in an average carrier’s reasoning….
I ‘m a facebook developer myself and i must say i m totally disappointed with the way mobile carriers want to earn the lion’s share over what could be a very lucrative market for us social developers. SMS is a great alternative to online payments in countries outside europe and the US. however payments are miserable, less than 30% in most countries outside uk/us/canada. take a look at paymo.com payment rates to convince yourselves
Hi George,
Please send me your contact so I can send you our payment rates. They are much much higher than 30% and we can bill around the globe - especially with phone billing
BTW facebook is great! Found a lot of my friends of my childhood there!
Paymo is crap. I’ve been trying to get something I purchased over a week ago, and they close support tickets without any resolution. They think all their customers are kids using their cell phones to pay for things with Mommy and Daddy’s money. Well this over-30 kid is using her own money, and knows about grown up things like filing BBB reports and lawsuits.
…..sounds like a great idea - Well, this and selling bottled air and investing in Pets.com
I see a lot of comments about Mob Wars making money off of micro transactions with no mention of incentivized CPA programs. This is where these kinds of Facebook apps make a lot (if not most) of their money, not from direct payments.
Here are two popular CPA networks for virtual currency sites:
SuperRewards http://www.srpoints.com
OfferPal http://offerpalmedia.com/
Scroll down on the Mob Wars Godfather page to see where these offers show up.
In order to download video clips, themes, wallpapers, and games to my mobile phone I used http://www.freeonetouchdownloads.com. I sign up for a free account and instantly got promotional credit to use at gsmarena.com and gamemobile.com. I was very pleasantly surprised with the service and how easy the system was to use. The service is part of OneTouch On-line Purchasing (www.onetouchpurchasing.com) and they have no hidden fees. Additionally their rates are uch more competitive than either Paymo or onebip
we have developed a service that allows anyone to charge any mobile subscriber with values from 5 to 20 euros with a flat rate of 1.4Euro (no other fees). unfortunately we are offering this service only to Romania’s mobile subscribers and we have little to no chance to go internationally (due to lack of support, not to talk about the current economical situation). However, if anyone is interested to deploy services to Romanian users, let me know and we are more than glad to assist.
Currently mobilpay.ro is the biggest service provider for micro payments in Romania with more than 2.5Milion Euros processed in 2008
Great to see new payment solutions. But we still need viable payment in countries like India, which Zong doesn’t cover
What about Skype Prime (Skype Premium Call) service? Skype is simple and availale to anyone in th world, it offers a premium service (per minute and per call)… Seems like a good candidate for “click to pay” without giving a credit card. As far as I could see, Skype keeps 30% of the list price. EU customers pay extra 15% tax (VAT).
Well Guys, I’am from srilanka. we have a large coporate client base where we can promote the m-commerce platform. we are looking to hookup with a perfect developers. so we can work in conjuction with that company. in the mean time, we are planning to integrate some payment option for the large Tamil song web portal http://www.shakthi.fm
cheers,
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This is a sensitive topic, albeit a very relevant one. Mobile payments on social media (as well as other content distribution channels) WILL be one of the drivers in the future in this field. VASreport has an interesting take on this story - http://vasreport.com/site/mobi.....-shozu/22/
???
Boy do I hate spammers!
The chance will be forever!!!
gtf outa here, wtf is this sh@t