educational

Billing Options on Phones

Christian Kreul

In my last article I wrote about “Smartphones vs. non-Smartphones.” Today I would like to provide you with some information about the different billing options you have for mobile devices. Billing is one of the most important topics and compared to the Internet there are several more options available.

In general we have four major options to charge a user on his mobile phone:

Even if you’re able to provide mobile billing in certain markets you should make sure to offer credit card and direct debit as an alternative payment option.
  • Premium SMS
  • WAP Billing
  • Credit Card
  • Direct Debit

Charges for Premium SMS and WAP billing are directly deducted from the users phone bill. There are some minor differences between SMS and WAP billing.

For instance SMS billing just offers fixed price points usually between a range of 0.19 – 9.99 EUR. Someone who wants to use SMS billing for his sites needs to decide what kind of price point he wants to choose. Let’s assume you decide to use a 2.00 EUR SMS price point. If you want to charge a user 6 EUR amount for content, three SMS messages would be send from the mobile phone.

But there are more limitations for SMS, depending on the carrier. Some carriers offer MT (mobile terminated) or MO (mobile originated) SMS.

MT means, the user will be charged, once you send him an SMS back (like a payment confirmation or receipt). MO charges a user a soon as he sends the SMS. Further you need to wait for a SDR (service delivery report) from the carrier. This SDR gives you the information if the payment was successful or not. Of course you don’t want to provide access to someone who hasn’t enough fund on his mobile phone.

One of the disadvantages of SMS billing is that the user needs to get active. Either he has to enter his mobile phone number into a form of the mobile website and has to wait until he receives a SMS message back. Usually he has to reply to this message. Sometimes the user also needs to be proactive to send the SMS message. So he would need to close his mobile browser, open the SMS folder and send the text message with a specific keyword to a special short code.

But many phones support the option that the user just has to click a link and the SMS message will automatically open up with prefilled keyword and short code. So he just needs to click the “send” button.

Compared to SMS, WAP billing is more flexible. You can charge any amount between 0.19 – 9.99 EUR. So you don’t need to decide which specific price point you’d like to use. Further there WAP billing provides a seamless flow. There is no need for the user to interact. He just clicks several times and has paid for the content. Unfortunately not every carrier supports WAP billing.

Compared to SMS, WAP billing offers a slightly higher payout. A lot of critics say that mobile billing just offers disadvantages. You are limited in the amount which you can charges, you have to wait a long time for your payout and the payouts are terrible, as the carriers are just paying between 30 to 75 percent (depending on the country). Sure, it could be much nice but I want to invalidate these arguments a bit later.

The last two remaining payment methods are credit card and direct debit. I don’t think I have to explain credit card billing in much detail, as we all should be aware how it works.

But I think it is worth to provide some more information about direct debit. In Europe, especially in Germany, people are used to pay almost everything via direct debit. The credit card penetration in Europe is around 25 percent and many people are just using a credit card to make hotel reservations or car rentals. Furthermore many people are afraid to enter their credit card information on a PC or a mobile phone due to possible fraud.

In Europe almost everyone has a bank account. And almost everyone is paying his monthly charges via direct debit. From rentals, electricity, loans, telephone and Internet charges, even mail or online orders. Everything! So what does it mean? The user provides his bank account information and grants the permissions to deduct this amount from his bank account. So to give you an idea: 95 percent of my monthly charges are paid via direct debit, as this is the most convenient payment method for me. I don’t need to take care about due dates and it is very comfortable for me. Of course I check my bank account on a regular basis to check if everything is correct! I have the option to do a chargeback but I never did it in my whole life, as there was no reason to.

Coming back to mobile – from our point of view we see more mobile charges via direct debit than via credit card here in Europe!

I am pretty sure many of you’ve heard that in a lot of countries, especially in Europe, people can pay for adult content on their mobile phone bill. Due to the conservative attitude of the U.S. carriers, mobile phone billing for adult content is not allowed in the U.S. And I don’t believe that this won’t be the case for many years.

So the only option to charge U.S. consumers for mobile content is via credit card. As mentioned in one of my previous articles the conversion rate, even for credit cards, is much better than for PC transactions. As people have to pay for almost every service with their mobile phone, they also expect to pay for content services. So in the U.S. we see very satisfying credit card conversions.

In Europe and other countries where supported we’re using the billing infrastructure of the mobile carrier either WAP billing or SMS billing. So users are able to pay very comfortable on their mobile phone. The amount will be deducted from their monthly invoice, which they receive from their carrier.

Of course every carrier and country has its own content regulations, which we have to take care about. In certain countries we can’t use mobile billing for hardcore content. The carriers and/or regulations are just allowing us to sell either softcore (e.g. topless) or glamour (e.g. bikini) content.

So what is the biggest advantage of mobile billing? The answer is simple – it’s the conversion rate! The average conversion for mobile billing is between 1:50 – 1:150, depending on the country. In the German speaking countries we see an every conversion rate of 1:75 at the moment. And we’re talking about weekly memberships. The user signs up for membership, which renews every week. The current retention rate is about 12 weeks holding time. If we would use credit cards rather than mobile billing we would have a conversion rate if 1:1500 (which is very, very positive estimated). But why do we have such a good conversion ratio on mobile billing? Because we make it very simple to provide an impulsive buying experience which is not possible for credit cards!

Let’s be honest — a user is horny and wants to “jerk-off” in most cases. What happens if he has to enter his credit card or bank account information? His thoughts move away from these nice previews and will be directed to his credit card/bank account information. The he asks himself if he can or want to effort it. He has to stand up, look for his wallet, take his credit card out and enter the details on a tiny device. This is the reason for a “bad” conversion rate. But I don’t tell you any secrets, right?

But with mobile billing it looks a bit different. The user is on your site, sees all the nice previews and clicks one time. Now he will be redirected to the payment flow. We show him the nice preview again, combined with all the important charging information.

From there it is just another click and this user is a current subscriber and can watch all the videos he wants.

Once he returns some days later and wants to consume more, it is not necessary to provide any login information. We recognize this user and let him automatically through to the members area.

Now let’s do the math. Let’s assume you’re sending 5,000 mobile hits to a site with mobile billing and 5,000 hits to a site with credit card billing.

With a conservative conversion of 1:100 for mobile billing, this would result in 50 signups. Compared to five signups if you have a very optimistic conversion of 1:1000 via credit card. Even if I don’t like the high cut of the carriers but it is more money than you can generate on credit card. Also you charge a mobile user every week and a credit card user usually once a month.

I mentioned earlier that the carriers keep in a range of 30 to 70 percent per transaction. In Western Europe the average payout from the carrier is about 55 pecent. In emerging markets and BRIC countries it’s around 35 percent. You think this is a ripoff? Yes, you’re right! It is! Carriers are monopolists. But which other option do you have? Credit card? Well, try to charge a user via credit card in South Africa or India. I bet conversion rates are 1:10,000.

Or maybe your payment provider doesn’t allow credit card transactions from these countries due to fraud! So be happy to generate at least a little bit of money! And the numbers of transactions combined with the conversions are compensating the poor payouts! It’s up to you to decide if you want to generate extra money or waste it!

Even if you’re able to provide mobile billing in certain markets you should make sure to offer credit card and direct debit as an alternative payment option. Why? Well many people are using Wi-Fi browsing the mobile web. As the Wi-Fi connection has priority over the mobile connection while browsing, it is not possible (or just hardly) to charge a consumer via mobile billing. So you should have to provide alternative payment methods!

SexGoesMobile offers mobile billing in 50-plus countries. It is very complicated to establish such an infrastructure. You need to take care to play the rules of the carriers and take care about regulations. Further you have to do intensive tests.

We make sure to play with local billing providers in every single country rather than to use a provider who is able to provide a whole bunch of countries.

This gives us the advantage that we have a point of contact in each country that can help us testing our services and improve the payment flow. Further their payouts are much better than companies who say they support 25 countries with a single integration.

Christian Kreul, who has been in the mobile Internet business for more than six years, is managing partner of Displayboy GmbH, headquartered in Germany, which operates the mobile affiliate program SexGoesMobile.com. He can be reached at ck@sexgoesmobile.com or through XBIZ.net under SGMChris.

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