M-commerce and mobile payments have gradually been gaining acceptance across the world, particular in developing markets where fixed lines of communication are less available.
In Europe, we’ve seen a growing number of direct carrier billing (DCB) integrations, but the majority of these have been surrounding digital goods. Ovum predicts the next step for DCB in Europe will be physical goods. Progress however, has thus far been slow due to a lack of appetite from operators to unite to provide DCB at the same locations – writes Hiroyuki Sato, CEO of DOCOMO Digital.
Internationally the leader in DCB, particularly for physical goods, is Japan. Since the start of the 20th century, Japan and the wider far-east has developed into one of the most technologically advanced regions in the world. High levels of advancement are evident more than anything else in mobile, with Ovum estimating that the Asia Pacific region makes up well over half of global DCB revenue with a multi-billion dollar worth.
DCB as a Payment Option
In my country Japan, DCB is seen as just another available payment method alongside traditional credit/ debit card providers. A major payment channel for digital content and services, DCB accounts for over 70% of purchases on the Google Play store (Source: Ovum). We’ve more recently seen growth in DCB for physical goods in Japan, meaning we rarely need to carry wallets, and only need to worry about paying one bill for our phone/ credit card.
Japan has done so well at integrating DCB because the system has been evolving for many years. The ecosystem started to develop back in 1999 with the launch of I-mode as a means for consumers to purchase content on their feature phone. This was gradually evolved from digital to physical, and customers have in the last decade fully embraced DCB as a major payment method. Supported by relatively low credit card penetration, DCB has been able to grow in Japan at a rate unlike anywhere else in the world.
The disproportionate growth in Japan has according to Ovum been down to two a number of factors: an unusually high app revenue to user, Google Play’s long established connections in the region, and a $2 billion web-based mobile games market in Japan that is largely mobile billed.
Merchants in Japan have also been more willing to advocate DCB as a payment option, and it tends to be seen as more of an opportunity, especially targeted towards younger people without credit cards. Unlike in Europe, with credit card penetration low DCB is seen by merchants in Japan as a valuable alternative to cash in the physical world.
Paying for goods such as fashion items, transport tickets, and groceries via DCB is relatively normal in Japan. It is also regularly used on online auction sites such as Yahoo Auction or Rakuten, as DCB is inherently more secure than credit cards as more difficult to copy. One of my favorite use cases is on transport systems. In Japanese cities consumers can charge prepaid transportation cards, similar to Oyster in the UK, from their mobile phones, making the whole process of buying a ticket quicker and more efficient.
The European Opportunity
As a Japanese owned company, to us the difference between DCB penetration in Japan and Europe is the level of opportunity. The European continent, tied by union wide regulation, is made up of some of the most technologically advanced nations on the planet, providing an opportunity for a new more connected and speedy payment method to be introduced for physical goods.
Since it’s inception in 1999 in Japan, DCB has often been used as a replacement for credit cards, rather than a brand new means of payment. In Europe on the other hand, credit card penetration is high, so there is an opportunity for operators to alter consumer behaviour and introduce DCB for physical goods as a new cutting edge approach.
In May 2016, a revised payments directive (PSD2) was introduced in Europe which has helped to create a level playing field for FinTech startups. With the regulatory easing that comes with the new mandate, now is the perfect time for operators to introduce DCB for physical goods, leveraging their own customer base, authentication and billing capabilities to ensure its success. The demand is there and from our own research, conducted by Ovum, we know that there is a potential $142 billion available in m-commerce revenue for operators between now and 2020 but only if they make the jump to fully support DCB for physical goods.
European operators have the technology available to them. They just need to fully introduce it, and encourage usage by incentivising DCB through loyalty programs, wallet services and eventually big-data driven recommendations to enhance consumer payment habits. DCB is key to the future of payments in Europe, and operators must learn from their Japanese counterparts.