European mobile operators and online commerce: the €26 billion opportunity

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European Mobile Operators & Online Commerce: The €26 Billion Opportunity White paper by Fortumo

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  • European Mobile Operators & Online Commerce: The 26 Billion OpportunityWhite paper by Fortumo

  • Smart devices and mobile internet usage has grown tremendously over the past few years. According to various reports, mobile internet is now more often used than desktop internet when accessing the online world.

    The growing population of mobile shoppers has enticed e-commerce merchants to put more focus onto making their online stores mobile-friendly, an approach that Google most recently rewarded by changes to its search ranking algorithms to promote mobile-friendly results. One of the biggest e-commerce giants Alibaba is even testing a mobile-only approach for its merchants.

    Yet the biggest challenge remains unresolved: payments. Conducting e-commerce from your mobile device (sometimes calledm-commerce) still requires card-based payments as preferred by thedesktop Internet, which force users to create an account, entersensitive data and fill out long forms on a small screen screen. Evenon tablets this is a hurdle.

    As a result of merchants using card-based transactions for mobile e-commerce, the purchase conversion on mobile devices is a massive50% lower compared to desktop devices. This is despite the powerfulimpulse desire of mobile - buy it now when I think of it. In several largeEuropean markets like Spain, Italy and France conversion is lowerstill. This means for every 100 Europeans making a purchase on awebsite, only 30-40 are doing so on their mobile device.

    Mobile operators are well placed to win the potential value and revenue from mobile e-commerce. They own the user accounts and the mobile billing infrastructure that solve mobile conversion. Leveraging those increases conversion for merchants while simultaneously generating both additional revenue and subscriber value for themselves.

    Introduction

  • Here is how purchasing an item from an online store looks like:

    * - If the mobile operator has the end-user's mailing address on file, information about the mailing address can be skipped.

    Credit Card VS Mobile payment

    For in-store purchases (point of sale) and the desktop Internet (large-screen, full keyboard) there is not so much difference between using a card or mobile phone to complete a payment.

    Confirm paymentEnter credit card details Enter delivery address Choose delivery options Confirm payment Payment complete Payment complete*

    In mobile however the payment experience differs greatly:

  • Some mobile operators are certainly making progress in the new segments of retail. For example, Switzerlands Swisscom has successfully entered the e-commerce segment with its sale of ski passes and cinema tickets.

    However, most operators have not (yet) launched payment products that engage with e-commerce merchants. These merchants are trying to extend existing businesses from the Internet into mobile environments, not establishing a mobile-specific or mobile-dependent business. Existing carrier billing products, by contrast, were built for a legacy model of digital VAS suppliers entirely dependent on mobile subscribers and are constrained by high transaction costs for merchants (50%+), tightly restricted price points and other limitations.

    E-commerce merchants look to their existing credit card costs (the industry standard is 2.9% per transaction) with full dynamic pricing support for their sales of goods and services and wonder how to add customers in mobile contexts. Their businesses operate within more typical retail costs and margins, rather than those of purely mobile digital suppliers, and they cannot operate on traditional mobile payouts.

    So, the problem with cards on mobile is not price, but user experience - and the opportunity for mobile operators is a superior user experience if they achieve merchant-appropriate pricing. Leveraging the mobile user experience drives incremental mobile conversions, sales and revenues, for both the merchant and the mobile operator.

    Are European mobile operators ready to bill for e-commerce?

  • Reasoning

    Increases amount of merchants able to integrate carrier billing; reduces integration time and complexity

    Technical capability

    Purely API based integration between merchant and mobile operator

    Enables merchants to transfer their existing business model to carrier billing

    Dynamic pricing

    Improves end-user payment experience and increases revenue for merchants thanks to higher payment conversion

    Ability for the merchant to get the users mobile number from via any mobile data connection

    Enables merchants (e.g. digital content) to transfer their existing business model to carrier billing

    Subscription payments support (including event based subscription, i.e. the merchant can trigger a repeat purchase any time without additional user input).

    Reduces integration time and complexi-ty, reduces time-to-market and increas-es amount of merchants able to integrate carrier billing

    No signicant limitations on service types that can be launched on specic connections (e.g. web, mobile web and native inapp services can be used and included in integration).

    Additional features: Taxation model support; 2-step charging capability; Refund capabili-ties; Operator lookup capabilities; Messaging API for conrmations and receipts

    Beside the right commercial terms, direct carrier billing as an e-commerce billing platform oers the following features:

  • Compared to the global average, Europeans have significantly better access to bank-based payments. So, why should merchants opt for carrier billing? Might it threaten to cannibalize their revenue from existing payment methods?

    The answer again is the user experience. Bank-based payments have a lot of friction during the checkout which reduces conversion rates several times. Direct carrier billing instead uses a 1-click payment flow, because the authentication process leverages the users status as a mobile operator subscriber: users are able to make purchases without entering any additional data, reducing the checkout process to a few seconds. Fortumos pilot project with m-commerce in Singapore has already shown five times lower shopping cart abandonment.

    Secondly, bank-based payments lack coverage in Europe. In fact, only 38.3% of Europeans have access to bank cards with an e-money function and only 41% of have made an online purchase during the past 3 months. The online payments % is most likely higher due to alternative local payment methods and direct debit solutions. Meanwhile, 78% of people in the European Union accessed the Internet during the past 3 months and mobile phone penetration stands at 125%.

    Therefore, the opportunity for European mobile operators is to capture the market of 76 million additional paying users via carrier billing:

    The European payments landscape & opportunity for carriers

    503 MILLION PEOPLE IN EUROPE

    78% HAVE ACCESS TO INTERNET

    41% BUY THINGS ON THE

    INTERNET

    206 MILLION ARE E-COMMERCE

    PARTICIPANTS

    186 MILLION POTENTIAL E-COMMERCE

    PARTICIPANTS

    392 MILLION INTERNET USERS

    41% ARE LIKELY TO BUY

    76 MILLION NEW PAYING USERS WITH CARRIER BILLING

    100% HAVE PAYMENT ACCESS VIA CARRIER BILLING,

  • The total money spent on e-commerce in 2013 from within the EU28 members was 363.1 billion . Across 206 million e-commerce participants, this means an average spend of 1762 per person per year.

    It is safe to assume that unbanked users have a lower average income than those who already have access to bank-based payments. Therefore we will assume a 5x lower spend per person (352) through carrier billing and the picture is as follows:

    Based on the most pessimistic estimates (no existing e-commerce participants will use carrier billing & 5x lower incomes) European mobile operators will be able to generate additional net revenue of 775 million per year or 26.75 billion in revenue (10% additional revenue on top of existing business lines).

    How much money do European mobile operators stand to make?

    503 MILLION PEOPLE IN EUROPE

    78% HAVE ACCESS TO INTERNET

    41% BUY THINGS ON THE

    INTERNET

    206 MILLION ARE E-COMMERCE

    PARTICIPANTS

    186 MILLION POTENTIAL

    E-COMMERCE PARTICIPANTS

    392 MILLION INTERNET USERS

    41% ARE LIKELY TO BUY

    76 MILLION NEW PAYING USERS WITH CARRIER BILLING

    1762 / PERSON IN ANNUAL SPEND

    E-COMMERCE IN EUROPE: 363 BILLION

    E-COMMERCE REVENUE VIA CARRIERS: 26.75 BILLION

    352 / PERSON IN ANNUAL SPEND

    CARRIER MARGIN OF 2.9% (EQUAL TO CREDIT CARDS)

    E-COMMERCENET REVENUEFOR CARRIERS:775 MILLION

    100% HAVE PAYMENT ACCESS VIA CARRIER BILLING,

  • [email protected]://fortumo.comhttps://blog.fortumo.comhttps://twitter.com/fortumo

    Payment cards access in EuropePopulation of EuropeE-commerce behaviour in EuropeInternet access in EuropePhone penetration in EuropeCredit card fraud in Europe

    Additional reading: