Goodbye PINs - U.S. wireless carriers are making the move to direct top-up

by: Mark Flanagan - Intele-Card News, December, 2004

Wireless service providers in the United States have been slower to adopt real-time top-up transactions, also known as PIN-less delivery, than European and other international counterparts. But the value proposition for service providers to implement direct top-up solutions is very compelling. The general perception within the industry is that most carriers are moving in this direction, and direct top-up will soon become the industry standard.

Market position

Prepaid wireless is established as a fast-growing alternative option for consumers today. Both carriers and MVNOs clearly recognize the opportunity to win new customers from various niche markets closely aligned to the prepaid model. At the same time, management within these organizations finds itself under added pressure to reduce costs and increase the efficiencies of their programs to help ensure program success and profitability.

Direct top-up will provide a platform to help meet these and other objectives, as prepaid wireless continues to capture more market share in the United States over the next two to three years.

Metro PCS is the first and only service provider in the United States to exclusively implement direct electronic top-up transactions as its payment model. Metro is a regionally based wireless carrier that has an established network of authorized payment centers through payment-processing partnerships with two POSA providers, Q Pay and Universal Data Corp.

There are several other national wireless carriers that have implemented direct top-up programs and several national carriers looking to launch top-up in the near future. Most, if not all, of these wireless carriers will be running their direct top-up programs parallel to their current hard card and e-PIN programs, but the long-term objective is to use direct top-up.

Setting the scene

When taking a look at the Tier 2 MVNO players, the current distribution model is quite different than the norm. Today, many Tier 2s, especially regionally based MVNOs, continue to distribute hard card airtime products to dealers, while POSA has remained a secondary method of distribution. This is contrary to the major wireless carrier prepaid programs, which have heavily embraced POSA and e-PIN distribution as the primary means to distributing wireless airtime services.

The typical demographics of the dealers serving these markets are geared more to the cash-and-carry distribution model. These dealers typically are small independent operators, often located in inner city urban areas, and they are simply more comfortable with a physical inventory cash-and-carry model.

It's clear that the lack of technology infrastructure supporting the electronic distribution of prepaid wireless products in these markets will be a factor in slowing down or impeding any type of transition to direct top-up. But, at some point, these service providers will be forced to transition to direct top-up once it starts becoming the industry standard.

PIN-less benefits

Statistically speaking, service providers that process real-time top-up transactions for variable amounts will typically increase their subscriber average revenue per user (ARPU) 20 percent to 35 percent as customers are not limited to fixed denominated amounts with their airtime purchases. As service providers are focused on finding ways to increase ARPU subscriber averages, real-time direct top-up could be the single most contributing factor to raising subscriber ARPU.

According to Brian Piltz, vice president of international business development at Debisys, "Deployment of our PIN-less top-up systems internationally will soon exceed traditional PIN-on-receipt implementations. We have seen carriers' ARPU increase in excess of 35 percent, which is virtually unprecedented in the prepaid industry."

Piltz says that PIN-related security issues such as theft, fraud and out-of-stock conditions are completely eliminated. "And by providing the carrier with a real-time view of all subscriber recharge activity," Piltz says, "they can accurately implement strategic marketing and promotion initiatives."

Fraud is always a hot topic when it comes to prepaid wireless, and the recent announcement by one of the major carriers regarding the internal theft of $20 million of prepaid wireless inventory has gathered considerable attention and concern. By eliminating hard cards and receipt-based PINs and replacing them with direct top-up programs, the ability to curb potential fraud and theft of inventory is reduced substantially if not almost entirely.

Managing costs

The costs to manage hard card and e-PIN programs are substantial, but with direct top-up, these costs are significantly reduced, and the path to profitability is greatly enhanced.  In fact, many of the direct costs related to distribution and management of inventory are mitigated with direct top-up programs.  "Lowering overall operating expense is a goal we constantly strive to achieve," says John Narraway, marketing manager for Cellular One Bermuda. "By eliminating the high costs and inefficiencies of live card distribution, we have increased profits while decreasing the probability of theft, fraud and out-of-stock conditions." Narraway further explains that the direct top-up technology provided by Debisys gives the carrier tremendous real-time visibility of its distribution channel via an intuitive web-based portal.

Ease of use

Direct top-up also provides a better overall customer experience, since there is no further requirement for the subscriber to call into an IVR system and enter a PIN each and every time they make an airtime purchase. Subscribers now appreciate the ability to put whatever dollar amount they wish onto their account.

According to Michael Leverock, COO of Cellular One Bermuda, "By providing an integrated point-of-sale application at all of our corporate and retail locations, the task of recharging customers' prepaid mobile accounts has been completely automated and streamlined. Our subscribers now are able to update their account balances instantly without the use of prepaid cards or annoying PINs."

Top-up methods

There are three primary methods available to service providers that enable processing real-time electronic top-up transactions:

POSA – It's the most widely used method for distributing prepaid wireless inventory today. POSA providers use standard credit card terminals, POS systems or client-server applications running on PCs to process real-time top-up transactions.

Internet – Via a web service portal, authorized dealers can process payments in real-time direct to a service provider's back-end platform. Subscribers can also process payments via the service provider web portal as well, using a credit card, checking account or prepaid stored value card as their method of payment.

Mobile handset – Subscribers can make an electronic payment directly from their handset using a credit card, prepaid stored value card or an electronic funds transfer (EFT).

Today, there is a very competitive landscape of POSA providers, each with varying technologies and systems. Most POSA providers work with proprietary front-end terminal software and back-end systems that distribute e-PINs or activate cold cards.

Direct top-up solutions process transactions by using a magnetic stripe account card or, if using closed proprietary networks, by simply processing the mobile number and payment direct to the carrier's back-end system. Most POSA providers use closed proprietary networks to process transactions.

A number of POSA providers have current terminal software applications that only process e-PIN transactions and are not capable of processing real-time direct top-up transactions. But these POSA network providers also recognize the need to offer real-time direct top-up solutions and are making the revisions and technology changes with their terminal software applications and back-end systems to process both types of transactions.

"My opinion is that the next step of prepaid evolution is finally arriving," says Gil Barzeski, CEO of E-Time System Inc. "It all started with airtime hard cards. Today, e-PINs have become the standard commodity in prepaid wireless. We are now all in a race to reach the consumer's pocket, and while trying to be cost effective, the next step is to implement real-time direct top-up as part of the overall solution to service providers."

When it comes to offering direct top-up, carriers will be very selective when choosing the companies with whom they will partner in providing real-time top-up solutions. Three critical components in choosing their partners will be the technology, distribution footprints and track record that prospective POSA network providers bring to the table.

Direct top-up providers

PreCash Inc. was one of the first prepaid transaction processors to implement a totally PIN-less transaction program, routing transactions over the VisaNet network. Using the branded PreCash payment card, a subscriber makes a payment on his account by simply providing the card with a payment to an authorized PreCash payment partner. Carriers such as Verizon, Sprint Wireless, Cingular, US Unwired and Alltel have partnered with PreCash.

"We have found in our discussions with service providers," says Gordon Breen, vice president of service provider sales with PreCash Inc., "that their acceptance of PIN-less solutions is a clear indicator of their willingness to move from e-PIN to an electronic top-up solution. In fact, many carriers that we're working with directly have set future target dates where e-PIN and hard card airtime distribution programs will be terminated in favor of direct top-up."

Western Union is another leader in direct top-up transactions and is integrated to many of the top national wireless carriers and MVNOs throughout the United States. Its direct top-up program processes near real time through their 40,000+ authorized Western Union dealers using the company's SwiftPay program. Subscribers can simply make a payment using their SwiftPay card or by providing their mobile number and the amount of payment they wish to make to their account.

Euronet Worldwide Inc. is the largest prepaid transaction processing network using a direct top-up solution in the world today, although they have yet to implement a direct top-up program with any U.S. service provider. As the industry leader in Western Europe and other international markets, Euronet provides its direct top-up payment processing technology to a large number of internationally-based service providers.

InComm and PRE Solutions Inc. are the two largest prepaid distribution companies in the industry today. Both companies have their own in-house proprietary solutions for processing prepaid transactions. They are positioned to meet market demand for top-up as carrier demand transitions to this method.

Rounding off the list of other POSA providers with technology-ready systems for direct top-up are Atrana, Debisys, Via One Technologies, Q Pay, Universal Data Corp. (UDC), Emida Technologies and E-Time System. Debisys and Emida Technologies have focused their efforts on international carriers and each has deployed several direct top-up systems throughout Latin America and the Caribbean where prepaid wireless services are in high demand. Q Pay and Universal Data Corp. provide direct top-up services to Metro PCS.

Does PIN-less mean jobless?

One of the most frequently asked questions is: In a PIN-less world, will there be the need for distribution channel partners? If so, how will their roles change? It's unlikely that electronic top-up will present a golden opportunity for service providers to eliminate their need for distribution channel partners and go direct to dealers. POSA providers and their distribution channel partners play an important and integral part in their sales and growth initiatives, whether the means to process a transaction is with real-time top-up, e-PINs or physical hard cards.

It's also safe to assume that the wireless carriers and MVNOs recognize that the prepaid market is a highly fragmented market that is very relationship driven. With this highly competitive market, service providers certainly see the value that their POSA network providers and distribution partners bring to the table and have no real incentive to come in between those relationships.

With the multiapplication terminals now being deployed, POSA providers and their distribution channel partners are now in the position to provide an integrated solution that will allow direct top-up or delivery of e-PINs, while introducing a host of other e-products and e-services such as bill pay, wire money transfer and age verification. These new suites of products and services that can now be sold through multi-app POSA terminals will help create stronger business relationships with retail partners and generate greater revenues and profits for both distributors and retailers.

Best foot forward

Real-time electronic top-up will become the new industry standard. How soon that will actually happen is anyone's guess. The transition will likely be gradual and will be implemented alongside currently offered e-PIN and hard card programs. But eventually, hard cards and e-PIN inventory programs will be eliminated in favor of direct top-up, as we've seen occur with some of the largest carriers in Europe.

From a distributor perspective, it's important that your POSA provider partner be technologically capable of processing a real-time electronic top-up transaction. If your POSA network is technologically ready for direct top-up, it will be a seamless transition when any wireless carrier implements a top-up program and goes PIN-less. Make no mistake about it – the transition to direct top-up is the long-term play for most service providers, and the wheels are certainly in motion to get there sooner rather than later.

The author is president, Prepaid Consulting Services Inc. He has recently partnered with Steve Kneiss, president and CEO of POSA Systems LLC, to launch Global Talk PCS. He can be reached via e-mail at mark@prepaidconsultant.com or at (949) 290-9707. He also is a member of the Intele-CardNews Editorial Advisory Board.