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A Smart Move? Carrier Billing for App Store & iTunes

by Nitesh Patel | 9月 16, 2015

On 14th September 2015 Smart Communications in the Philippines announced that it has partnered with BDO Bank to enable carrier billing for postpaid customers to Apples’ App Store and iTunes through its “pay-with-mobile service”; the first operator I am aware to provide Apple iPhone owners with this capability. Pay-with-mobile can only be used by users with Postpaid Plans 300 and above, and Smart Bro iPad plans.

The requirement for a credit card to make purchases via both the App Store and iTunes has been a clear barrier for iPhone owners without credit cards who want to download premium apps or make in-app transaction. Alternatively, iPhone owners would need to purchase a prepaid iTunes credit for a fixed amount at a physical retailer – which is far from hassle free and not conducive to impulse transactions.  

Smart has provided a guide to how pay-with-mobile works. The user registers for the service via an SMS message and receives a virtual credit card number, security code and expiration date which they need to keep a note of. The user then registers their virtual card details to their Apple ID, selecting MasterCard as the payment network, and adding their address. The user can then make purchases on iTunes and App Store. Smart then sends a confirmation of the purchase against the users’ postpaid account, which could take up to 72 hours. However, purchases made with pay-with-mobile are charged at a higher rate to the stated to iTunes price due to the foreign exchange rate that needs to be applied to MasterCard, and a 15% fee to cover VAT and what Smart calls a “convenience fee”.

Good for Operators

I believe pay-with-mobile is a good move by Smart for two main reasons.

  • First, it addresses a need for iPhone owners that don’t own a credit card, and provides Smart with an advantage over rivals operators that don’t support iPhone billing. Smart is providing iPhone users on its network with another reason to remain loyal and not churn to competitors.
  • Secondly, it enables Smart to tap into the iTunes and App Store value-chain, which to-date, operators have been locked out of. Smart will also generate some (albeit minor) revenue from transactions via its “convenience fee”.      

There will be some clear challenges. Credit card penetration in the Philippines is around just 4% (or around 4 million cards), while by comparison there will be an installed base of over 3.7 million iPhones at the end of 2015. I expect there to be a strong overlap between credit card penetration and iPhone ownership, which means only a limited number of Smart's iPhone users will benefit from the pay-with-mobile initiative. However, the service is linked to users Apple ID and covers all iTunes and App Store purchases across the ecosystem of Apple devices (iPhones, iPod Touch, and iPad, etc), and other PCs, which boosts the addressable market beyond just iPhones. 

The surcharge, which has been applied in order to cover the extra players in the value-chain, including MasterCard, BDO Bank and Smart, will likely deter purchases. Furthermore, unless it is clear that the price advertised will differ to what the user will pay on their phone bill, there will inevitably be some confusion. It would help Smart if, in some way, users could find out the exact price they will be paying at the point of purchase decision.

Good for Apple

Historically, Apple has resisted working directly with operators to support direct operator billing, preferring to keep a billing relationship with the consumer themselves. Apple may have good reason to, given that some operators still demand a higher revenue share than the standard 30% that Apple typically keeps. In fact, Apple’s approach has still not really changed. Pay-with-mobile works though Apple’s existing Affiliate Program, with the innovation relating to carrier billing coming from Smart and BDO Bank. However, accepting integration with carrier billing is a step forward, and likely an acknowledgement that its rigid approach to operator billing will not work in emerging markets, due to low credit card penetration. Apple should view pay-with-mobile as a test case for emerging markets – with a view for engaging with operators in other markets which share similar low levels of credit card adoption and growing levels of Apple device ownership, such as India and Indonesia, among others. Overall, I expect opening up to operator billing will be a good move, and a necessity in order to address the needs of a growing base of Apple device in emerging countries.

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