Purchasing by SMS is the new revolution in online payment systems and although the market is relatively new there are a few players out there feeling the market and are making increasingly easier for merchant to sign up and start accepting payments via SMS. Many providers also have sales by phone although I think the SMS payment system is the most important and consumers are more likely to SMS for purchase rather than make a phone call as it is easier and less intrusive.
As I have previously said, if you can get a payment system that enables more users to purchase your goods then it is a good thing. MasterCard and Visa have distributions of between 1 and 1.5 billion, PayPal may have a few more as it combines its own system with both of these cards, but SMS purchasing can be used by more than 3 billion consumers. Imagine having 3 billion possible customers online instead of 1.5 billion – now that could effectively double your revenue.
The SMS online payment industry has been around for several years now but it has not really ventured online and been available for online merchants in a way that is becoming easier as the competition grows. You know those late night TV advertisements selling mobile products such as ringtones, XXX and games and all you need to do is text the number. The price is around $5 for a message company will try and hook you into a contract so you end up paying $100 or so for the month, well the telco companies definitely take their cut.
At the moment the telecommunication providers (such as Vodaphone, Virgin, etc) take a very large 40-70% if not more from the sale and so the merchant doesn’t end up with much money in his pocket. Credit Cards only cost 2-4% so 40-70% is a lot more of a hit for a merchant and I can see a lot of you thinking “no way, its too expensive” but lets think for a minute. There are a few great points about SMS purchasing;
1. Your business will have access to more than 3 billion customers worldwide; double any other payment method out there.
2. Many customers don’t like providing their credit card details online due to safety. They are more likely to accept SMS payment.
3. The new economies like China, Brazil, India and Russia have growing economies and consumer spending is increasing rapidly. Many consumers don’t have bank accounts but are usually up to date with new technologies, especially the younger generation.
4. No chargebacks with most providers.
5. If you have high margin or high volume goods, such as online music, games, downloads, then payment by mobile phone is perfect.
6. With increasing competition the commissions are coming down giving more back to the online merchant. Companies are beginning to negotiate lower commissions from the telco companies which is great for merchants and the industry as a whole.
I have to say, I am pretty excited about the prospect of SMS purchases. I think the telecommunication industry has a great chance to form a new billion dollar industry of ‘mobile credit’ although it does have lots of work to do before it is widely accepted online. It was put together by a guy who has set up mobile payment systems offshore and has a great view of the potential of the market.
1 – Your customer enters their mobile phone number onto your website to purchase the item.
2 – The SMS payment provider (ie, Paymo) provides you with a message advising you to confirm the purchase.
3- You confirm by sending a text in return and are provided with a code.
4- You then use that code to access the purchase content or the item will be sent to you.
5 – The Network Operator or telco company after a period of time sends the money to the SMS payment provider. Although the transaction is approved instantly, the telco companies take a considerable amount of time to pay the SMS Payment provider.
6 – Once the SMS payment provider gets the money they will transfer it to your online merchant account.
7- The money then appears in your merchant account. The transaction is recorded at the time of sale and so you can keep records; you just don’t get your money until usually a few months later.
8 – You now have the funds in your bank account and can do whatever you want with your cash.