Direct Carrier Billing – A Mobile Moneymaker in Emerging Markets

Direct Carrier Billing (DCB) is the major mobile phone moneymaker in developing economies. These include Russia, India, China, Indonesia, Brazil and South Korea.

According to Juniper Research, in emerging countries, DCB generates app-store conversion rates about five times higher than credit cards. Digital sales include music, ring tones, e-books, apps and even “adult content.” The advantage of using a mobile phone for the latter is that the transaction remains anonymous.

The monetization goal is to extend the kinds of purchases that can be billed on a mobile phone to just about any product and service sold online. In South Korea that’s already a reality. But there have been three major obstacles in other developing countries.

One has been the large transactional fees carriers charge merchants. These are analogous to the swipe fees for credit and debit cards in the US which are imposed by their issuers. Obviously, app retailers in developing countries are open to other kinds of billing systems which cost them less.

The second is the average price of purchasing just-in-time minutes. Unlike in much of the US, developing economies’ mobile users do not have contracts. Instead their approach is just-in-time purchase of the minutes they need.

If a fresh kind of discounted billing plan is developed, phone users wouldn’t have to be alert to how many minutes are consumed in “shopping” online. They could browse without their eye on the meter. Those browsers could become buyers.

The third has been the complexity of the DCB ecosystem in developing nations. That consists of having to integrate the carriers themselves, tech developers, app stores and the platform vendors. The relationships can be fragile, impeding scalability.

In those nations, less than 30 percent are “banked,” that is, are associated with a financial institution or have a credit card. The smartphone is evolving into the checking account or plastic they easily transport in their pocket.

Research from eMarketer forecasts global smartphone use will reach two billion by the end of this year. In developing nations, if using those phones for all online purchases becomes standard, that could have grim implications for the “card” industry. Billing habits die hard. After all, the digital wallet isn’t catching on as quickly in the US as anticipated.

Therefore, the card industry – credit and debit – might find it difficult to penetrate these markets when they assess that finally there is profit to be made. It could turn out that they miss the boat on this opportunity. To regain it they might have to use expensive tactics such as deep discounting of fees.

Despite all these developments in emerging nations and possible consequences for big card companies, the DCB story has been a sleeper. That’s because in the payment industry tends to focus on the technology piece. What’s eye-grabbing is the payment tools created by disruptive software and hardware developments. These also are what attract the attention of venture capitalists.

In terms of technology, DCB is ancient. That’s because the niche has wireless carriers at its center. In addition, its one-time signature technology – premium SMS – is being phased out.

However, DCB is getting the job done in emerging nations. Those fed up with technical disruption for its own sake might celebrate the monetary role DCB serves and how much bigger it could become.