European mobile operators and online commerce: the €26 billion opportunity (white paper by...

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

Transcript of European mobile operators and online commerce: the €26 billion opportunity (white paper by...

Page 1: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

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

Page 2: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

IntroductionSmart 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 the desktop Internet, which force users to create an account, enter sensitive data and fill out long forms on a small screen. Even on 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 massive 50% lower compared to desktop devices. This is despite the powerful impulse desire of mobile - buy it now when I think of it. In several large European markets like Spain, Italy and France conversion is lower still. This means for every 100 Europeans making a purchase on a website, 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.

Page 3: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

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:

Page 4: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

Some mobile operators are certainly making progress in the new segments of retail. For example, Switzerland’s 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?

Page 5: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

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 user’s 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 significant limitations on service types that can be launched on specific 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 confirmations and receipts

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

Page 6: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

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 user’s 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. Fortumo’s 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,

Page 7: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

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,

Page 8: European mobile operators and online commerce: the €26 billion opportunity (white paper by Fortumo)

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

Additional reading: