Opinion: Operators need to rethink how they ask customers to pay for digital services

digital service, payments, Matrixx

By Jennifer Kyriakakis, Founder and VP Marketing, MATRIXX Software

How do you pay your mobile bill? Do you prepay and add credit before you use a service, or do you use the service first and then pay at the end of the month?

What if you didn’t have to do either?

Few people like the hassle of constantly topping up their prepay credit or holding their breath for the monthly bill that might be sky-high.

For CSPs, the former set of customers have not been credit scored, while the latter are deemed credit-worthy. But why should that matter?

These pre- and post-paid tariff models have evolved over decades to meet the needs of CSPs selling services in the telecom market.

But they bear no resemblance to how customers pay for things in the retail market, where consumers aren’t prepaid or postpaid, but instead “pay now”.

In other words, they pay as they consume, whether it’s for a box of Cornflakes, for a new shirt or for a pair of new shoes.

The Millennial generation (adults aged 18-34 years old) are digital natives accustomed to the instantly gratifying experience provided by the internet.

This generation prefers the pay now way of life and is gradually starting to expect the same experience from their mobile service provider.

Traditionally, CSPs have tended to focus on how to sell to customers and charge them for products, rather than focusing on their customers’ needs and how they wish to pay.

Implementing a pay now model has the potential to expand the market for CSPs looking to become fully-fledged Digital Service Providers (DSPs) in a number of ways.

First, it will open up the market to customers who prefer a more consumptive model of paying for goods and services but do not want to deposit credit with a company or risk running up a large bill.

This move addresses a key barrier to managing one-off and impulse sales by allowing the DSP to sell to anyone who is not already a subscriber to the network.

In fact, in order to widen their reach, DSPs need to focus their attention on consumers rather than on subscribers.

The advent of eSIM devices will give telcos a new opportunity to sell services to multitudes of non-subscribers.

DSPs can exploit not just new markets but practically any consumer, anywhere, at any time.

Customer loyalty on its own doesn’t automatically translate into increased sales. Retailers don’t talk about ARPU or loyalty but instead are focused on optimising wallet share.

They understand that by designing a product at a cost that is appealing to a wide range of customers, higher profits can be made while meeting customer needs.

If DSPs adopt this approach to the way they package and sell products, they too will see these benefits.

In the APAC market, for example, some DSPs are finding that selling time-based packages – such as an hour of Facebook browsing – is more successful than selling by the megabyte alone.

Here, instead of the consumer purchasing data in large chunks, they are encouraged to buy only what they need, when they need it.

Ultimately, selling data at a value that is understandable to customers, at a slightly higher unit cost, is better than just selling chunks of GBs, which some users are unwilling to commit to or which they find are poor value – but sold at a lower unit cost.

This strategy can open up entirely new markets and demographics and crucially also increase revenue.

According to Goldman Sachs, the Millennial cohort out-numbers Generation X and the Baby Boomers in the US (92 million, 61 million and 77 million respectively).

This rising cohort represents the biggest opportunity for CSPs in several decades, if they follow these four basic principles:

  • First, DSPs must create a range of products that consumers want to buy, making it easy for them to discover these products and understand their value.
  • Second, they should look to establish a better level of trust by making bill shock a thing of the past, instead providing real-time transparency over data usage, spending, and choice.
  • Third, the service provider needs to ensure that the payment, authorisation and authentication process is swift and seamless while still being secure. DSPs need to charge for time-limited products, and conduct flash sales to drive immediate purchases.
  • Finally, pay now opens up new customer segments for DSPs, helping them to become far more agile in terms of acquiring new customers.

Pay now processes are necessary in order to provide consumers with the instant gratification that they are already accustomed to.

In the end, pay now is a highly strategic approach that allows DSPs to simplify processes and quickly enter new business areas and new sectors.

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