Apple, the King of Market Timing, Makes its Next Move: Carrier Billing

I can remember few times in my life when I was more excited about a “magical” technology than I was in 2000. My good friend Sol Lipman and I were driving down a dusty road on a spur of the moment road trip; carried away from our apartments in the Valley on that particularly strong wind that only comes when a bubble bursts. While we took stock and thought about the future, we blared Californication by Red Hot Chili Peppers from that magical piece of tech: the MP3 player...a AA battery powered, 64MB of onboard memory Nomad Jukebox.

What? You don’t love your NomadJukePhone 6s? Oh that’s right...despite portable digital music players being around since 1996, no one *really* cared until Apple released the first iPod in 2001.

In comedy and technology, timing is everything. Enter a market too soon and no matter how great your product is, it will flop. Bide your time, refine your product, pick your moment, and even a “me-too” product can have world-altering success.

The beauty of Apple is that it doesn’t just time markets: it creates them in the same fell swoop. When it came to MP3 players, any other company would’ve been considered 5 years late to the party but, when it comes to Apple , the party doesn’t start until they get there. It happened with smartphones and smartwatches. It happened with tablets and contactless payments. Sorry Samsung, it even happened to your beloved stylus.

Now, Apple has picked its moment once again - this time placing a bet on a technology near and dear to my heart: carrier billing. Out of the universe of alternative payments Apple could’ve integrated alongside Visa and Mastercard in iTunes, it chose carrier billing.

Can you imagine the media frenzy if Apple started accepting Bitcoin? While it may not be creating as much buzz on day one, Apple’s adoption of carrier billing is a no-less significant milestone in the payments industry and the logical next for a payment method that has come a long way since it was first introduced.

A legacy of big promises

Carrier billing is perhaps the oldest form of ‘mobile payment.’ It lets customers charge purchases directly to their mobile network operator. No bank or credit card needed.

Carrier billing always showed huge promise. After all, nearly every person on earth, regardless of what’s in their wallet, is carrying an already-activated source of digital currency (for reference, take a look at the excerpt from this infographic below showing smartphone penetration vs. other forms of payment). It’s worth noting that the math here may be overrepresenting card penetration - there are 2.15B credit cards and assuming a conservative average of 2 cards per person globally, you are looking at about 1B people with credit cards.

But for years it delivered little more than ringtones, horoscopes, pornography and fraud. Add exorbitant fees, suffocating regulations and strict rules around the use of SMS , and you’ve  created an environment where mainstream merchants — and therefore most customers — stayed away.

But things began to change when Facebook added carrier billing as a payment method in its App Center. Suddenly customers could use carrier billing to buy credits on social games like Farmville. And for the first time, carrier billing was offered as a payment option next to credit and debit cards. Next came Google Play and fees dropped low enough in some markets to make it viable for a wider range of digital content such as software, music, TV, and movies. Soon, consumers began to discover carrier billing in more places like the Sony PlayStation Store and for subscriptions to their Spotify app.

And it wasn’t just the fees that got better. The experience did too. With the latest implementation of carrier billing in the iTunes and App Store, carrier billing is finally treated just like a credit card. After setting up carrier billing once, customers use their Apple ID and password to make purchases on any device - whether that’s an iPhone, iPad, Apple TV, MacBook, or any future Apple hardware product.

WorldPay produced some interesting data in its 2nd edition Alternative Payments Report regarding the growth of alternative payments relative to credit cards,

This trend away from credit cards and towards alternative payments is even more pronounced when you drill in on certain markets:

Germany stands out as particularly low in the “credit card” usage and relatively high on “mobile." They just so happen to be the first market where Apple chose to launch their carrier billing solution with O2. While this chart only focuses on Germany, many countries around the world, particularly in Asia, are similarly inclined towards alternative payments.

So why is Apple choosing this moment? Lower fees, reduced restrictions, and a more card-like experience all likely play into the decision. But I’d also guess that Apple is attracted by the fact that carrier billing has three key characteristics: it's mobile, global, and local.

Carrier billing is a uniquely 100% mobile payment experience. If you have a phone, you can pay using only that phone. It's also global. Phone penetration in every market, developing or developed, is many multiples of credit card penetration.

No one should be surprised if Apple continued expanding with a global, rather than United States-focused strategy. Similar to Facebook’s global focus with its developers required to use Android phone, the phone of choice in the developing world, if iTunes carrier billing expands to more markets --  and why wouldn't it -- Apple opens iTunes to a new world of potential consumers in markets where credit cards are scarce but everyone carries a phone.

Finally, carrier billing is local in the sense that carriers have become, in some markets, more recognizable and trustworthy to consumers than banks. Customers have more brand affinity, more trust, and a clearer connection to the services provided by their carrier.

What this all means

Apple's support will strap a rocket onto the carrier billing market, even more so than all other innovators that have added carrier billing over the last 6 or so years - that’s Facebook, Sony, Electronic Arts, Amazon, Samsung, Spotify, and Google. This is carrier billing’s iPad, iPhone, and Apple Watch moment. That moment when Apple doesn’t just time a market, it creates one.

It’s been a fascinating time in mobile payments and we’re in the greatest era of payments innovation the world has seen. But the last time a new payment mechanism to achieve this kind of global adoption was 15 years ago, when PayPal was founded.  Before that, you have to go all the way back to the introduction of the credit card itself. This is a once in a generation shift in how we pay, and Apple is likely the tipping point.

(Disclosure: I'm board member for Boku).