Profitability and ARPU have dropped substantially over the past decade leaving Operators looking for new opportunities to fight back. Compounding this, delays in 5G rollouts and revenue release have been exacerbated by COVID-19 and recent news stories relating to the use of Huawei technology – creating further challenges.
There are now worries about consumer confidence post COVID-19 as many are forced to deal with reduced levels of disposable income. The paradox to all of this is that Mobile commerce via smartphone now accounts for 79.1% of all online shopping in the US, compared with 49% during 2019, according to a May 2020 study of 3,500 consumers by PYMTS. Surely MNOs can earn a share from this?
This blog will show how Mobile Operators can use existing assets to increase pre-tax profit between 10 – 40% and reduce costs and customer churn at the point of top-up.
There are two different viewpoints that need to be considered for MNOs to understand how to harness the macro trends affecting the industry at the moment and open new sources of recurring, high-margin revenue. The first is the Merchant standpoint and can be told through a story involving Italian digital payments bank, Nexi.
Bricks and mortar Merchants have had a difficult time these last few months. Lockdown has reduced or removed the usual number of footfall customers. The risk of infection from the use of cash has sparked a huge increase in contactless payments, supported by the increased contactless limit of €50. It’s not just ecommerce via smartphones that have increased its ecommerce overall, in Italy this has meant the kick starting of the entire ecommerce industry which previously lagged behind similar sized countries such as France, Germany and the UK.
The retail market in Italy is made up of a higher proportion of smaller independent bricks and mortar businesses, which prior to the COVID-19 outbreak had no online presence. Nexi realised there was a need to help these merchants (their customers) to move their businesses online as quickly and efficiently as possible to enable them to stay afloat during this period – then to flourish through both online and physical world sales going forward. To do this Nexi introduced 2 simple services, Pay-by-link, where their clients can quickly start accepting payments using a payment link, and a simple E-catalogue Service.
During COVID, just as ecommerce has increased, so has Card-Not-Present Fraud – where a fraudster uses someone else’s compromised card information to make a remote purchase. This represents a substantial cost to online businesses. Cart Abandonment, where a consumer abandons their shopping experience at the checkout page is also a significant problem which leads to lost sales for the merchant, and Nexi is again working with its customers to optimise the customer journey wherever possible reducing friction and complexity.
The second viewpoint that we must consider is that of the Consumer, particularly relating to their preferences towards ecommerce and online payment products. To do this we will examine the data from an independent study based in Europe, which was commissioned by Online Contactless payment solution, Maxa Group, and was conducted by leading global consumer research agency, Kantar TNS.
Kantar undertook a study using their established methodology to assess consumer attitudes towards internet shopping and specifically around their preferences towards online payment products, with a view to understanding the potential for consumer adoption of new digital payment solutions.
The study was undertaken in 2019 and is representative of a population of 2.5 Million smart phone users, appropriately weighted by key socio-economic demographics deemed relevant, such as life-stage, age, gender, as well as representative across their use of technology, e.g. types of online device owned, online payment tools held, and type of mobile phone OS, as well as propensity to use contactless cards for payments already.
The study showed that 1 in 3 consumers intend to increase their volume of online shopping, but currently the lack of a secure payment method is a prohibitor. When asked what would make them spend more, 34% told us that if they could find a secure payment method they would spend more online, with a further 22% stating that online shops that protect their security was a principle driver. A further 22% stated a quick and easy method would also be a catalyst for them.
As we looked at the emotional need to compliment the rational, we learned that due to mistrust Consumers don’t want to share personal or card information. They want a fast, easy, “connected” payment option. In the course of this research we introduced the respondents to the Maxa Online Contactless solution, which is a new digital payment solution that allows Consumers to pay for online shopping by tapping their contactless card against their own mobile phone.
The respondents said that Online Contactless was a clear winner when compared to the respondents frame of reference which included alternative online payment forms such as eWallets including Apple Pay, Google Pay and PayPal, as well Bank transfers and conventional card payments online – with results outperforming the category for most KPIs. Across usage, clarity, uniqueness, and excitement, Online Contactless had a clear point of difference and was deemed highly relevant. 83% said Maxa was “easiest to use”, while 87% said it was “the fastest to use”, compared to other online payments methods.
The Maxa solution has mass market adoption and was anticipated to achieve an active usage adoption rate of 19% within the first 12 months in some countries. We also learned that the solution would create a boost for online shopping for people that prefer using mobile or tablet devices and would grow the market of ‘on the go’ use cases.
Now to pull these threads together, from the challenges and opportunities to Operators’ profitability, the growth in ecommerce and contactless payments and what this means for merchants, and what the consumer is looking for from an online payment product.
The $3.5 Trillion ecommerce market is broken. Current challenges are preventing most online Retailers and Mobile Operators from driving significant revenue growth related to new macro trends – and customers are experiencing frustrating online shopping experiences.
Ecommerce is expected to nearly double by 2023 to more than $6.5 billion (Statista 2020) and Mastercard reported contactless transactions up 40% globally in Q2 2020. The convergence of these macro trends can be harnessed to unlock new MNO revenue streams, as well as providing an elegant customer experience that nurtures satisfaction and loyalty.
As such, new payment solutions such as Maxa Online Contactless – which enables consumers to pay for their internet shopping by tapping their contactless card and their own mobile device – sit at the point of macro trend convergence. But its more than just being in the right place at the right time, Maxa is also solving the $3.5 Trillion ecommerce problem – 4 problems to be exact and it’s doing this by addressing the common root cause of them all.
Problem 1 – Keying in data or storing card data online. Kantar’s study observes that 55% of the population resents having to undertake these tasks due to trust issues and the slow and laborious process they involve. However, this is not a problem that occurs in the bricks and mortar world when paying for goods using contactless payments – which is precisely what Maxa Online Contactless replicates in the online world using the consumers device as the POS terminal.
Problem 2 – Cart Abandonment. Consumers often get as far as the check out page before a purchase and then walk away due to complex checkout procedures. The global average for this is 76% of baskets dropped, and 85% for mobile commerce. It’s not a problem that happens in the physical world. Maxa Online Contactless removes checkout complexity by allowing consumers to tap their contactless card against their own mobile phone, dramatically reducing abandonment rates.
Problem 3 – Card-Not-Present fraud. CNP Fraud represents about 70% of total card fraud and equates to approximately 3% of revenue lost when you factor for charge back processes, fees, losses and stock replacement costs. If a merchant operates at 15% pre-tax profit, then it equates to 20% of profits walking out the door. Again, CNP Fraud is not a problem in the physical world when the consumer uses their contactless card to make a payment at the terminal. Maxa Online Contactless replicates this process for the online world, eradicating CNP fraud.
Lastly, problem 4 – we have the new requirements for 2-Factor Authentication and within Europe the Strong Customer Authentication (SCA), where the cardholder will require to authenticate themselves using 2 independent factors. Proposed solutions for this from the industry are expected to slow the transaction down further and, in many cases, cause it to decline. This not a requirement in the face to face world either as we already have Chip & PIN. Maxa Online Contactless allows the user to enter their normal bank card PIN number into their mobile phone to authorise transactions above the contactless limit – providing an SCA compliant solution.
All four of these problems stem from one route cause – previously there was no EMV POS terminal available for ecommerce transactions. In a global payments industry first, Maxa Online Contactless turns the Consumers Mobile Device into an EMV POS terminal, solving all 4 of the biggest ecommerce problems for Consumers, Merchants, and Acquirers – but it also solves a problem for MNOs as well.
As part of the Online Contactless solution, Maxa brings 2 key benefits to the Mobile Operator:
- Maxa pays a share of the transaction revenue to the Operator of every transaction made by one of their subscribers using Online Contactless.
- On Prepaid top-ups, Maxa enables the consumer to simply tap their contactless card against their mobile phone to facilitate the top up which reduces both customer churn at a critical point, and also reduces the cost to less than 1% of the value of the transaction.
Combined, these two contributions can be shown to increase pre-tax profit on an MNOs post-paid business by between 10 – 20% typically, and to improve the pre-tax profit on the prepaid portfolio by up to 40%.
So in summary, Maxa Online Contactless extends the use case for everyday contactless cards from the physical world into the online world. In doing so it solves the 4 biggest underlying problems for ecommerce, and it meets the existing consumer needs highlighted in the Kantar research.
By turning the consumers phone into an EMV POS device as safe, easy and secure as in the physical world, Maxa enables consumers to pay for their internet shopping by simply tapping their contactless card against their phone. Maxa then shares the revenues generated by the consumers transaction more equitably amongst stakeholders allowing the MNO to earn an impactful recurring income from their involvement without the hassle of a becoming a regulated payments provider. As it uses an MNOs existing asset there is also no cost, risk, or support and maintenance. In doing so, Maxa offers a credible pathway to reversing the profitability decline in Mobile Network Operators.
To request a live demo of Maxa Online Contactless, as well as a full analysis of the revenue it can deliver for your business, please contact us using the details below;