Price points versus Dynamic pricing |

date 01/06/2014

author Božo Juretić

One of the fundamental differences that merchants who are first time comers to mobile billing struggle to grasp is the difference in pricing in mobile billing payment methods, as opposed to traditional payment methods like credit cards and bank transfers.

When customer is paying by card or using wire transfer, merchant is free to set any price for his goods, up to a cent/penny precision, i.e. 9,99. This is possible because in credit cards (to follow on the payment methods used in this example) the authorization for payment is received by connecting to the billing system of a remote bank (which issued the customer’s card) through Visa/MasterCard’s networks. By accessing the billing system directly, merchant can charge any amount – therefore he can have a “dyanamic” pricing of his goods and services.

Mobile billing has a different history than credit cards, and in many countries it still relies on legacy technologies, like Premium SMS. These systems were not meant for billing when they were introduced, but were evolved to serve this purpose, because of a huge demand for micro-payments in all countries in the world.

Given the limitations of the smallest common denominator (Premium SMS) most of the mobile billing platforms thus use a system of pre-defined pricepoints, which merchants can use to price their services to customers.

For example a price points of 1 EUR, 2 EUR and 5 EUR are available on a mobile billing system (but not 1,5 EUR or 1,55 EUR) and thus merchant is forced to accommodate the limitations of this payment method, in order to provide services to the huge mobile billing marketplace. Moreover, if the merchant is targeting several markets, it is entirely possible that those will have different price points available.

This has technical implications as well, since most of the “payment gateway” modules in web applications are assuming dynamic pricing, and are completely inadequate for charging customers via mobile billing.

This is actually a practical reason why “credits” or “virtual coins” were introduced in many applications, because these concepts allow merchants to normalize the different price points available in different countries (and different currencies) by converting them into “virtual coins” of fixed value – thus merchants and customers receive a fair access to services, even if they pay different amounts in different currencies in different countries.

As the mobile billing is getting modernized, multiple Direct Carrier Billing (or Direct Operator Billing) systems are introduced in countries around the world. These are advanced and modern systems, similar to card authorization platforms, and they give the merchant capability of interacting with billing systems of mobile network operators directly. One of the nicer points of this is that merchants can use dynamic pricing, thus moving the mobile billing into the mainstream e-commerce from the micro-payments niche it is right now.

If you are thinking about implementing mobile billing in your business, feel free to contact us to find a best solution for your needs in your targeted markets.