What’s The Future of Bulk and Premium SMS?

When it comes to brand marketing, messaging still has an important role to play. When many marketers are thinking about fancy apps or mobile sites, many are overlooking the ability of SMS to drive users in a cheap and universal channel. Whilst free to user SMS is growing, premium SMS (PSMS) has a less optimistic future.

Both short codes and bulk SMS have been the mainstay of mobile marketing and
mCommerce for over a decade. With the advent of smartphones, new communication
channels and new payment systems are their days numbered?

As a mobile marketing consultant I’m often asked if we’ll have SMS in the future. Given
that most people can get emails on their phone, message through Facebook or access
instant messenger, why would they use SMS at all? Many teenagers have switched to
BlackBerry’s IM system, BBM. They can use it even if they have no phone credit, have group
conversations and forward messages anonymously. And surely what teenagers are doing
today, the rest of us will be doing tomorrow?

In spite of all of that SMS is still growing each year. In 2010 there were 6.1 trillion messages
sent globally by 4 billion individuals. That’s more messages sent than voice calls made from
mobiles, not only that, but SMS is growing by nearly 30% each year. It’s not just consumers,
brands are using SMS more and more for communications from service to marketing. So
why does SMS remain the ‘killer app’ for mobile? The answer is, in short, that nothing
comes close in terms of immediacy, speed, discretion and most of all, universality. Everyone
has SMS and everyone knows how to use it. BBM, for example remains niche and there’s
no evidence of wide adoption beyond anyone other than teenagers. A recent study by the
DMA and IAB into brand messaging found that SMS opening rates were above 92%. That
is consistent with other studies into messaging. That’s good, but even better when you
consider that less than 25% of brand emails are opened or read. What’s more, people read
text messages quickly. In the study we found that 65% were read within 5 minutes and 85%
within an hour.

In the last few years many brands have been developing apps and within the last 12 months,
many retailers have created fully transactional mobile sites. In spite of these new exciting
channels, SMS is still the driver for brand activity. They use it because they know it works.
The UK retailer Marks and Spencer have a very successful mobile site, yet text messaging is
an important element of their mobile strategy. They have over 1 million people who have
opted in to receive weekly offers by SMS. Argos use SMS as a service tool with their ‘Text to
Take Home Service’. In Australia, the IT retailer, Leading Edge Computers found that they
tripled their response rate over print advertising when they switched to SMS . In the US,
men’s retailer K&G created an SMS-based coupon channel for their customers. 93% of them
used a coupon during a three month period. Whilst these are all large, well-known brands,
many smaller businesses have benefitted in a similar way by using SMS to send promotions,
support their service or just allow customers to engage with their brand.

Whilst SMS is on the rise, it would appear that Premium SMS has fared less well. A few years
ago, mobile content in the form of games and ringtones was largely billed through PSMS.
However, figures now show a dramatic drop in revenue. When it comes to content, these
days most of it is delivered through app stores, such as iTunes, where payment is made by
registered cards, not a phone-based payment. When it comes to shopping, mobile users
are also using their credit cards and one-click payment by the likes of Amazon and M&S
have shown that we trust brands enough to buy through our phones. Looking a little further
ahead, contactless payments or NFC is rolling out on a global scale. BlackBerry launched a
handset earlier this year, Google have been trialling NFC and there are strong rumours that
Apple will include contactless in their next major handset.

This leaves PSMS as something of the poor relation when it comes to payment. That
isn’t a great surprise. From a merchant perspective, whilst the credit card companies
take a small fee, up to 35% of the value of a Premium SMS is taken by the operators. For
customers there is considerable distrust. Numerous scams and errors with premium SMS
that have led most people to believe that they will be charged unexpectedly. However,
many people are still cautious, and in the UK the BBC no longer uses premium rate services.
SMS plays an important role in mobile banking. There are 2 billion people without a bank
account globally, yet most of them have a mobile phone. SMS is now becoming a means
of transferring payment or phone credit. In the Philippines for example, SMS has replaced
wire-transfer as a means of moving money between individuals. But this is not Premium
Rate Messaging, this is SMS as the trigger for the transaction. Perhaps the only exceptions
where PSMS is on the rise are the charity campaigns. Both the Haiti campaign in the US
and the UK’s Comic Relief have raised considerable sums through text-based donations.
However, these are the exception to the trend. These charities have achieved 100% out-
payment from the operators and have been backed by massive media coverage. Smaller
charities and most brands don’t have the same luxuries.

When it comes to free-to-user SMS, the future looks very bright. It gives brands a universal
and immediate call to action that no other channel can create. It drives other campaigns
both on and off mobile phones. However, as a means of payment, issues of cost and trust
means that PSMS has a much less optimistic future.

The future of mobile micro payments: is there one?

It was reading ‘Being Digital’ many years ago that first alerted me to the idea of micro payments. Rather than paying a subscription to a magazine, for example, why can’t we pay a few pence to access an article that we are interested in?

I was interested to see someone from the mobile aggergator, Oxygen8, writting about the problem with mobile micro payments.

Arguably we have a good mobile micro payment system already in the form of Permium SMS (PSMS). It is, in many ways, the idea format – simple, secure and universal. Not only that, but PSMS has age verification built in. PSMS really took off with the ring-tone market, quickly followed by text voting and charity donations. However there is one big problem with PSMS. The mobile networks take around 66% of the value of the transaction. On a credit card transaction, only 4% of the cost is paid for the transaction. There are othe problems too. When it comes to goods and services, PSMS can only be used for mobile products: ringtones, games or apps. There are some PSMS shortcodes that can be used for website access, but you couldn’t use it to buy a newspaper for example. Added to that, VAT is charged on the full value of the SMS. If you are using PSMS as a payment system for services that already include VAT, then technically VAT should only be charged on the transaction cost itself.

I think many of us are waiting for a mobile micro payment system. I would love to hope on a bus, get out a taxi or pop into the newsagents and wave my mobile phone to pay for things. Then there all the remote services from articles on the internet to booking tickets that would be so much simpler if I could just pay directly through my phone. Taking the concept a bit further, why shouldn’t I be able to pay for everyting through my phone where my monthly bill look something similar to my credit card bill?

A few years ago the mobile networks attempted to address the micropayments issue by introducing something called PayForIt. This was a mobile web, one click payment system for transaction values up to £10. I doubt that many people outside the mobile industry have heard of pay for it. The networks have invested very little money in promoting this system. And at the same time, they are still taking massive transaction fees for each payment, so from the merchant’s point of view, even though there is potentially a higher uptake with PayForIt than credit cards, the cost per transaction doesn’t make it viable.

Cashless and online payment systems have had something of a chequered past. Does anyone remember CyberBanx? Or Mondex, a cashless card invented by HSBC? Or the more recent attempt by banks at mobile payments called mpay? In fact, the only online payment system to have become universal is PayPal thanks intially to the online porn industry and more recently to ebay. But even PayPal mobile has stummbled at the first hurdle. Does anyone actually use it?

So what is the future for mobile micro payments? The short answer is, it will be a difficult one. Whilst it would seem that the mobile networks could get their act together with lower transaction fees, it’s unlikely they will. Apart from the fact that there is no unity amongst the networks to make such an agreement, there appears to be no interest for them to do it. It’s possible that PayPal will get their act together with mobile payments, as they are doing with the Blackberry App Store, but at this stage I don’t see it going much beyond this limited scope.

Probably the best opportunity for mobile micro payments comes from NFC, near field communications and RFID chips. These are secure chips that are used in payment systems such as The Oyster Card, used for London’s Transport. In fact, Oyster could be the UK’s best bet for a cashless micro payment system. All they need to do is stick the RFID chip into mobile phones. We already have readers on public transport and many newsagents in London. All the needs to happen is that it is extended to other outlets, and voila! In terms of paying for online or mobile though, there is still considerable work to be done with the mobile networks. There are many examples worldwide of NFC payment systems, and mobie NFC working succesfully, so maybe there is some hope for the UK.

I would love to see a universal mobile micro payment system. By universal, I mean one that everyone can use without difficulty. Many people do not have or use their credit cards. This is particularly so in developing economies such as China. Given the current state of affairs, I think a universal mobile micro payment system is a long way off.

Less than charitable – charity donations by SMS

As this doesn’t seem to have been reported, this will count as rumour.

Prior to the recent Red Nose Day, the mobile networks agreed to give 100% of the premium SMS for donations to the charity. Typically with PSMS, the networks take quite a large chunk for themselves – around 55% (but depends on the value). Some networks are also rather greedy and take 10p for texting in to the shortcode additional to any bundles or subscription tariffs.

PSMS also includes VAT, which in the case of charity donations isn’t technically correct. In the case of Red Nose Day the government generously agreed to give the VAT from the PSMS as well.

However, one mobile network operator, did not agree to give all of the money to Red Nose Day and intended to keep a considerable chunk of the money for themselves. It was only when Gordon Brown himself phone the operator that they agreed to hand over all the cash to the charity!

Through my own work, we run a number of charity donation campaigns. Both the VAT issue and the amount of money taken by the networks is a continued frustration. A working group has now been set up to deal with this, and to provide a ‘charity’ shortcode that will not attract VAT and provide a higher payout rate.

For more information on charity donations by SMS, please see txt4giving.com