Why Carriers Need To Operate Like Visa or MasterCard

visa-logoOk, I will admit I have never worked for a carrier and I don’t know their future plans for mobile commerce, but I do know one thing:  carriers love money and they do a good job at taking way too much of it. Yes, premium SMS is a multi-billion dollar industry and it’s made a lot of carriers good money, but could it have been even bigger? Premium never really took off for SMBs and, let’s face it, there are millions more smaller businesses than bigger ones. You had to be a big player like Disney or Universal to really make money with content like ringtones and wallpaper. The carriers typically take 50% of the revenue generated from premium content; as a result, it didn’t allow many people to jump in the game. Overall , I don’t think we have seen the mass adoption that premium could have made if it was less expensive to get in. Of course, the premium SMS scandals that took place didn’t help either. There were a number of unscrupulous companies that would get consumers locked into premium monthly subscriptions with no way out.  As a result, there were quite a few lawsuits and consumer confidence was damaged.

Think of how great premium SMS works. You can text into a short code and have a message sent to your phone in about five seconds. The first message tells you about the service, the cost, how often you will get content/messages, and asks you to reply “YES” to sign up. You simply text back YES and that $4.99 service then shows up on your cell phone bill each month until you decide you want to stop the service by just texting “STOP” to the same short code. How absolutely simple is this? Now imagine products and services everywhere that you could interact with simply by texting in to a unique keyword/code. You would get a message back telling you the cost and all you have to do is reply YES to make your purchase. No money exchanges hands, no credit cards have to be pulled out and swiped, and there is nothing to sign. This my friends is the future of mobile commerce, and some companies are already selling services that can do just this.

Let me jump quickly to the recent horrific event  in Haiti. We all know what happened, but you have to be living under a rock if you have not seen the multiple short codes promoting keywords like HAITI, QUAKE, and YELE. Millions of dollars were quickly raised. I bet 50% or more of you reading this have text in to give $10 (if not, you really need to). Do you remember how easy that was? The good news here is that the carriers are not taking anything; the charity gets all of the revenue for their relief efforts.  The reason I bring up Haiti is because it’s probably the first time most Americans have experienced the power of how quickly you can give someone money. All it takes is 30 seconds, and you can do it from the comfort of your own home.

As I mentioned earlier, there are mobile commerce companies with services that allow you to buy products over SMS. One of these companies is named Shoptext.com. I like what they are doing, but they have a potential scaling problem. Let’s say Ticketmaster used Shoptext and wanted customers to quickly buy tickets by promoting a short code and keyword for each event. The customer first needs to register with the Shoptext service, and what I have seen in the past is that they need to get the customer to link his credit card or bank account with their service. If they have Ticketmaster promoting the service, then it’s going to be easier to get customer to sign up with Shoptext, but I have seen Shoptext offer a  consumer facing service and I just don’t see a big consumer adoption of using a third-party service. Who wants to give up this very private information to a brand  he really  doesn’t know?  I could see Shoptext integrating with Ticketmaster’s commerce system so that the consumer is signing up with Ticketmaster, but they could just as easily build their own messaging solution with an aggregator.

But guess who has an even better relationship with the consumer than Ticketmaster? Guess who has this person’s credit score, social security number, and all kinds of preferences and purchase history? The carriers. They not only have a way to qualify customers for service, but bill them and collect. Guess who else has this same information? Visa and MasterCard. Who does Ticketmaster use for the credit card transactions? Credit card companies of course.

Before you can buy an iphone, AT&T checks your credit, gets all of your personal info so if you flake on them they can report you, and sends you a bill each month. They also have a massive call center for accounts receivable, and if you have even been behind on your bill, you know they call your ass–a lot (or so I have heard). Major credit card companies do the exact same thing.

Imagine if the carriers came out with a mobile commerce standard for all businesses. You register with some third-party intermediary like usshortcodes.com and they give you your own keywords and short code (that works on all carriers) so that you can promote your product or service anywhere. All a customer has to do is simply text in the product number to a short code, reply YES to the message that comes back, and voila!, your customer has purchased something from you. You would get a daily deposit of funds just like the credit card companies give to you. Sounds great, right? You might be asking yourself why the carriers don’t see themselves as a credit card agency. Think about it–every single person you know has a phone. Why would the carriers still want to take 50% of a billion dollar industry when they can take a much smaller percentage of a trillion dollar one? Carriers have a real opportunity to morph their model into a Visa or MasterCard, start charging a small service fee (like 2%), and let the flood gates open. They are definitely the closest any business is to starting a massive credit agency without starting something from the ground up. Of course, there are a lot of logistics that need to be worked out, such as getting people qualified for bills larger than $150 per month. But to me this opportunity is the logical evolution of where carriers should go and will go, and as a consumer, I would love to get rid of my wallet and only carry around my car key and phone. I didn’t even get into mobile app payments, but that is another conversation.

I wonder which carrier is working on its credit card agency model right now and who will be the first to launch it. Anyone have any ideas?