By Hiroyuki Sato, Founder & CEO of DOCOMO Digital
On the 13th January 2018, the new Payment Services Directive (PSD2) came into effect, revolutionising the entire payments industry and affecting everything from the way consumers pay for goods and services, to the safety and security of their data online. The directive has already begun paving the way for new generations of payment providers and Direct Carrier Billing (DCB) services which are offering a more compelling customer focused strategy, compared to the existing legacy providers.
The new regulation update is standardising and improving payment efficiency across the EU fintech industry, all whilst promoting innovation and competition between banks and new payment service providers (PSPs). These new services will look to challenge existing companies such as MasterCard and Visa by offering a range of services that make banking hassle-free and are shaped to improve the customer experience.
Whilst PSD2 will encourage a new wave of innovative and integrated payment methods, it is important to note that Direct Carrier Billing (DCB) services are facing some of the strictest requirements from the new directive.
The Future for DCB Services Post PDS2
A recent report from Ovum forecasts that total DCB revenues will increase to $24.7bn in 2019 from $14.5bn in 2014, and since it’s inclusion on Google Play, DCB sales have grown by 300%.
DCB services offers consumers, merchants and Mobile Network Operators (MNOs) a whole host of opportunities within the payment industry. The service has become increasingly popular amongst consumers completing transactions globally because of its simplicity, security and accessibility.
However, PSD2 has constricted the rules on DCB for consumers who have become accustomed to buying digital goods and services via their mobile phone. The new directive is seeing single DCB transactions being capped to a maximum of €50 per transaction, with a maximum monthly limit of €300.
PSD2 will continue to allow Electronic Money Institutions (EMIs) to extend the scope of DCB from digital content to the purchase of physical goods. Until now, the original directive restricted what goods, such as wallpaper, music and ringtones, could be billed to a mobile phone user’s bill after purchase. This regulation was significantly holding back the market for carriers and merchants, so there is plenty of reason for optimism in the DCB market, despite more strict regulations.
Payment providers across Europe are starting to adopt the new legislations that will not only standardise and improve payment efficiency across the European Union, but also provide fresh opportunities for growth to DCB services. If DCB services are to be successful under PSD2, operators and regulators will be starting to consider the full user experience and make sure to clearly outline the changes for their consumers, including the new price limits.
According to Juniper Research, the potential value of digital content in Europe via carrier billing is predicted to rise from just over 2.6bn euros in 2015 to nearly 14bn euro in 2020. This gives merchants a whole host of opportunities to generate more added value in digital content areas such as ticketing, gaming and gambling. Merchants who offer DCB services will be able to sell more and convert more potential customers, and push DCB as a more popular method of payment due to lower processing fees. However, the new PSD2 law will be creating considerable on-boarding friction when having to adjust their internal infrastructure to allow for a new set of processes. This will significantly delay implementation and may prevent the launch entirely for merchants and DCB services.
Merchants are able to offer their own payment services and retrieve customer data from their banks, allowing for a faster and more seamless transaction online with increased security. This will be eliminating the need for customers to be redirected to another service or platform to process payment and giving merchants the change to offer a full turnkey customer experience.
A safer process for consumers
As a method of payment, DCB offers compelling benefits for consumers, with it being one of the most accessible methods of payments whilst being safe and easy to use.
PSD2 will not only be encouraging the emergence of new payment methods in the market, it will also create a level playing field for new and existing service providers to innovate, create and ultimately give customers increased choice and availability. It is putting the consumer back in charge and offering a more secure protection of data that merchants will have to abide by.
Since the customer has an already established relationship with their carrier provider, most are very comfortable paying for goods and services through their phone bill. The new two-factor authentication and risk management processes offer excellent fraud protection without adversely affecting the purchase experience. Merchants won’t have access to the consumer’s personal information that DCB services will manage and keep secure.
With the consumer being at the heart of the PSD2 update, it’s vital that DCB services, merchants and MNO’s change their offerings to suit the needs of existing and new consumers. It’s an uncertain future for direct carrier billing now PSD2 has been live since January, but with EMI’s allowing DCB services and merchants the continued choice to offer a more compelling purchase landscape and new opportunities arising for a subscription based model, it looks to be a bright future still.