Total spend using direct carrier billing will reach $100 billion for the first time by 2025; rising from $37 billion in 2020, believe researchers at Juniper Research, driven by increasing need for convenient payments in the coronavirus era.
The increasing shift to subscription-based monetisation models for digital services such as games, video streaming and music, says Juniper, will be key to the market realising a substantial growth rate of 172% over the next 5 years.
The convenience of combining monthly subscription costs into a user’s monthly cellular subscription will be a key growth driver for carrier billing over the next 5 years. Carrier billing vendors should focus on expanding their partnerships with digital service providers; enabling consumers to pay via carrier billing, capitalising on the growing trend of monetisation via subscription.
Whilst carrier billing spend on physical goods is established in the Far East, Juniper has identified emerging opportunities for carrier billing vendors in North America. The analyst believes that high smartphone penetration and accessibility of same‑day delivery services will be key driving forces behind a growth to $600 billion of end-user spend on physical goods over carrier billing by 2025.
According to the report, larger merchants are starting to take an interest in DCB; increasing the opportunity for providers. Adding any new payment method can be advantageous, as the more ways there are to pay, the more people will end up paying. Beyond this, some specific factors are driving the adoption of DCB.
Providing an alternative payment method for consumers without bank accounts or credit cards has been a significant driver for fintech over the past decade. As improved infrastructure and mobile telecoms have made Internet access more readily available globally, gaps in electronic payment have resulted in missed opportunities.
DCB offers a practical alternative for many unbanked consumers as well as those with bank accounts but not credit cards. Payments are made in familiar currencies, transactions are simple, and payment is completed using a bill the user is already paying.
Juniper Research estimates that 28% of the adult population are unbanked in 2020, with this falling to 18% by 2025. Regions such as North America and West Europe are estimated to have a proportion of unbanked adults that is below 5%. However, regions such as Rest of Asia Pacific and Africa & Middle East are anticipated to have a large degree of unbanked adults over the forecast period.
There has been a sharp increase in smartphone ownership among younger people over recent years. In the UK in 2019, while 79% of adults used a smartphone, the proportion was 97% among 25-34-year-olds and 100% among 16-24-year-olds. In wealthy countries and the global middle class, a generation has grown up expecting to be able to do almost everything through their smartphones.
A growing portion of content caters to this young demographic, though many of its younger members are legally excluded from card ownership in nearly all markets. DCB eradicates the need for credit card use; enabling storefronts and content providers to establish appealing content for the younger demographic and flexibly bill them for purchasing this content, as long as they are actively using an Internet-connected device.
The impact of COVID-19
According to the study, the global coronavirus pandemic is set to have both short and long-term impact on the DCB market worldwide.
The implementation of social distancing and quarantines to limit the pandemic had an immediate impact on DCB payments. More people were at home and making use of digital commerce. Companies including Boku, DOCOMO, and SLA Digital all reported gains in transactions.
A large part of this came from entertainment. There was a huge increase in streaming, while gaming platforms saw more use by casual gamers. There was also a rise in health and fitness purchases, with a 40% rise in downloads of health and fitness apps and a rush to eLearning, with Coursera seeing an eightfold increase in uptake for some courses.
Ticketing declined as events were cancelled and travel restricted, but overall, DCB saw an upward trend in use, as did other electronic payment systems.
Longer term, the experience of lockdown could accelerate an existing shift towards digital purchasing. Few things are harder to change than ingrained habits, and COVID-19 has forced such changes on consumers.
eCommerce companies have taken market share from brick-and-mortar stores and some of that change will stick. Some customers who used DCB for the first time during the pandemic will keep with it out of ease.
As restrictions loosen, the desire to reduce infection risk will lead to less use of cash. Many shops are avoiding cash payments to protect their staff; forcing customers to make electronic payments. eTicketing and electronic payment for transport are also likely to increase, as local authorities implement infrastructure more resistant to future outbreaks.
The experience of COVID-19 has potential to change the regulatory context of eCommerce. Some of the governments who were most successful in fighting the outbreak, such as South Korea, succeeded because they learned from previous pandemics over the past 20 years. While the current focus is on returning to normal, many countries will be looking at how to make their economies more robust and societies less prone to ‘second waves’, in preparation for future diseases.
Easing restrictions around electronic payments is one way to do this. For example, the UK has seen the upper limit on contactless card payments raised. DCB could easily be overlooked in any changes, and so it will be up to DCB companies to develop relationships with governments and regulators, to advocate for DCB’s role in a safer economy.
Not enough data is yet available to see how far COVID-19 leads to long-term change, argues the report. Any benefits it brings will not be a radical departure from the past, but an acceleration of existing trends that can benefit DCB. Those benefits could be substantial, but there are also risks.
A more flexible approach, allowing more space for small and one-off digital purchases, could open wider markets for DCB; making it a useful tool for casual digital consumers. More broadly, experiencing the value of greater flexibility could encourage MNOs to try new things in the sector.