LOOKING TO DRIVE REVENUE? PARTNER UPThe Mobile Payments Opportunity for Telcos

The European telco industry is struggling with a 27% decline in ARPU between 2009 and

20171 and a high yearly churn rate of 25%2. Many telcos are missing out to competitors

who are more agile at creating stickiness with their products and services.

From private car hire to coffee, merchants are simplifying consumers’ buying experiences.

Uber has eliminated the concept of paying cash and consumer anxiety about taxi fees.

Starbucks can cut queue waiting times by offering a mobile order and multiple payment

options.

Here, we explore the mutual benefits of creating partnerships in the mobile payments

industry and how telcos can use these partnerships to shift their consumers’ perceptions

of them from “operator” to “digital marketplace”.

TELCOS CAN IMPROVE THEIR SHARE OF MOBILE PAYMENTS SPEND WITH NEW PARTNERSHIPS.

AVERAGE HOUSEHOLD EXPENDITURE BY CONSUMPTION TYPE, EUROPE2

Recreation and culture Restaurants and hotels

Homeware

Clothing and footwear

Education and health

Housing, water, electricity, gas and other fuels

Communications

Miscellaneous goods and services

Transport

Food, drink, tobacco

2

9%9%

12%

13%

16%24%

5%

3%

5%

5%

Of the average ¤3,055 monthly household spend in

Europe, telco services represent just 3%3. This relates

to spend on traditional fixed and mobile voice/data

services.

Telcos already have profile data and a billing

relationship with their customers. This can be

leveraged to facilitate more payments and increase

share of wallet by aggregating products and making

the mobile payments process more attractive than

that of their market counterparts.

TELCOS CAN EXTEND THEIR REACH BY PARTNERING WITH OTHER PLAYERS WHO HAVE ACCESS TO CONSUMERS, MERCHANTS AND PAYMENT ENABLERS.

TELCOS CAN CREATE “TRANSACTION-ENHANCING” AND “VALUE-ENHANCING” PARTNERSHIPS.

To increase ARPU, telcos should focus on two

drivers: number (or frequency) of transactions

and amount spent per transaction. This leads to

two types of initiative: “transaction-enhancing” and

“value-enhancing” partnerships.

Transaction-enhancing partnerships increase the

total number of times a consumer makes a payment.

An example of this is PayPal’s partnership with

Skype to gain access to Skype’s userbase and

increase their peer-to-peer transaction volumes.

Value-enhancing partnerships increase the amount

spent per transaction by the consumer. For example,

O2 Priority offers O2 customers benefits which

extend far beyond priority to services offered at the

O2 Arena in London, giving O2 a share of merchant

sales.

PAYMENT PARTNERSHIPS: HOW TELCOS CAN INCREASE PAYMENTS VOLUME AND SPEND

3

PAYMENT PARTNERSHIPS

TELCO AS PAYMENTS ENABLER

TELCO AS DIGITAL MARKETPLACE

TRANSACTION-ENHANCING

Make the payments process more efficient, Increase number of transactions

Telcos can enable customers to pay with direct carrier billing on partner platforms (e.g., Google Play, Netflix) and offer more choice of payment methods (e.g., PayPal,

Apple Pay)

VALUE-ENHANCING

Make the offer more attractive, Increase spending per transaction

Telcos can supplement their communications offer with a marketplace for third-party digital goods (e.g., Netflix, Amazon Video, Spotify, Kindle, Audible,

Google Play apps)

¤

Successful mobile payment players understand

the need to work hand-in-hand with adjacent

companies in the value chain. Transaction-enhancing

partnerships maximize the simplicity, efficiency and

conversion rate of a consumer mobile payment. This

addresses the issue of shopping cart abandonment,

since 21% of consumers abandon mobile payments

because the payments process takes too long4.

By being directly involved in the payments process,

telcos can positively impact their conversion and

churn rates. Below, we discuss two cases, one where

the partner is the payments enabler, one where the

telco is the payments enabler.

TRANSACTION-ENHANCING PARTNERSHIPS BOOST SERVICE STICKINESS AND SPEND FREQUENCY.

CASE EXAMPLES

TRANSACTION-ENHANCING PAYMENT PARTNERSHIPS OFFER MORE PAYMENT METHODS AND CHANNELS

SKYPE + PAYPAL5

The partnership allows Skype users to make transfers to each other via their

PayPal accounts.

Sells voice over IP top-ups and business conference call services via Skype for Business

Sells third-party mobile apps to consumers via own marketplace

Skype’s primary service becomes more sticky and users top up more frequently

Google Play increases customer loyalty and spend frequency by offering more choice of payment methods

Takes a % share of consumer-to-business PayPal payments

Sells telecommunication services (voice and data) to consumers and businesses

PayPal reaches Skype users who would otherwise not make a P2P7 transfer and gets a % share of transfer

O2 increases customer loyalty by offering more convenience and gets a % share of the sales

GOOGLE PLAY + O26

The partnership allows O2 customers to pay for Google Play apps via their

O2 bill or credit.

SKYPE GOOGLE PLAYPAYPAL 02

Partnerships such as these give consumers more mobile payment choices, in terms of

channel and method. This wins trust and stickiness with consumers due to savings in

time, effort and potentially cost (for example, if a payment has a discount attached).

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4

THE RISE IN DIGITALIZED SERVICES IS A REAL OPPORTUNITY FOR TELCOS

TELCO DIGITAL MARKETPLACE EXAMPLE

Movistar is gradually driving Spanish telco operators to offer extended digital services.

The partnerships they have formed with digital merchants increase ARPU, as consumers

have more product choice and more convenience in a one-stop shop. Some telco

innovators are taking this one step further to form a telco digital marketplace.

VALUE-ENHANCING PARTNERSHIPS INCREASE CONVENIENCE AND ARPU.

The 10.4% decline8 in telcos’ service revenues is

impacted both by increased competitiveness among

operators and the take-up of over-the-top (OTT)9

calls and messages. While companies such as

WhatsApp and Skype are regarded as telco

competitors, we believe some OTT providers can be

telco partners. Popular streaming services like Netflix

and Spotify are being incorporated into a number of

telco bundles.

OTT players represent just one example. Where

there is a matching customer segment, a strategic

fit between services and a mutual benefit, there is a

partnership opportunity for telcos.

These value-enhancing partnerships enable a third-

party merchant’s goods to be sold to the telco’s

customers via a digital marketplace.

Imagine a business model where every merchant that

relies on data connectivity to sell their goods pays a

percentage of their sales to telcos. In some case, data

is “zero-rated” which makes the data usage free to a

consumer (for example Three UK provides content

such as Netflix with no data charge).

In the same way that Amazon started aggregating

physical goods online 22 years ago, telcos can offer

their customers a platform where they search for,

compare and buy digital goods.

The result? ARPU rises, driven by demand-driven

services. Customer loyalty rises, due to convenience

and variety.

MOVISTAR APPS & DIGITAL SERVICES

Spanish telco Movistar resells digital goods as a value-added

service. This offer is separate from

their telecom service.

¤YAVOY

Music streaming service

Spotify

Kindle

TU WEB

Website creating platform

EMOCION

Mobile games and apps download

Netflix

Audible

MUSIC & VIDEO

PARTNERSHIPSEXISTING SERVICES

BOOKS

COMMS

NUBICO

eBook and eMagazine

subscription

McAFEE

Online multi-device

security

5GB

500M

MOVISTAR CLOUD

Cloud storage services

5

AT ACI, WE UNDERSTAND TELCOS’ CHALLENGES IN INCREASING REVENUES

AND WE HAVE THE SOLUTIONS TO ADDRESS THEM.

INTEGRATION

GLOBAL COVERAGE

MOBILE SOLUTIONS

ROBUST INTEGRATION

METHODS

MULTI-CURRENCY AUTHORIZATION

AND SETTLEMENT

iOS AND ANDROID IN-APP

PAYMENTS

OPEN API, RAPID CHANNEL

ACTIVATION

CONNECTOR ON DEMAND

MOBILE SDK

eTERMINAL

SMART LOCAL TRANSACTION

ROUTING

DEVICE-OPTIMIZED SECURITY FEATURES

ARPU

Falling due to increased competition

DATA

In demand due to OTT

services

ACI® PAY.ON® PAYMENTS™ GATEWAY

CHOICE

Required in payment options

6

WE HAVE THE CONNECTIONS AND PARTNERSHIPS TO ENSURE A ROBUST SOLUTION FOR TELCOS.

Acquirers and alternative paying

methods

Countries Billions of consumer transactions

each year

Languages

350+ 160+ 125+ 25+

This paper is one in a series designed to help telcos understand and evaluate the mobile payments opportunity. Visit www.aciworldwide.com/mobilepaymentsopportunity and sign up to receive your copy as each insight paper is published.

1 Average Revenue Per User, % change between 2009 and end of 2017 in EU28, Red Dawn Consulting, IDATE 2 Blended churn rate for post-paid and pre-paid, Tefficient; 3 Eurostat, 20174 “Mobile Money Report”, Mobile Ecosystem Forum, October 20165 PayPal and Skype partnership started in August 20176 O2 and Google Play partnership started in June 20147 Peer-to-Peer or Person-to-Person Payments8 Red Dawn Consulting, ETNO “Annual Economic Report” 2017, IDATE9 Over-The-Top providers (e.g. WhatsApp, Skype) offer digital services that require telcos’ networks to function

7

WE ARE A TRUSTED PARTNER TO RETAILERS, BANKS AND TELCOS

AROUND THE WORLD.

40+ YEARS INNOVATING PAYMENTS

17 YEARS SUPPORTING TELCOS

© Copyright ACI Worldwide, Inc. 2017 ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo, ReD, PAY.ON and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.

THROUGH PARTNERSHIPS WITH STRATEGIC DIGITAL PLAYERS, TELCOS CAN CAPTURE MORE CONSUMER SPEND. DON’T BE LEFT OUT.

Talk to us about how you can create payment partnerships that drive up ARPU and build customer loyalty.

Chris Curd, Head of Telco Sales - Europe

chris.curd@aciworldwide.com

+44 (0) 7884 262751

www.aciworldwide.com/telecommunications

FOR MORE INFORMATION:

This report has been prepared in partnership with Red Dawn Consulting