Apple takes mobile phone billing to Russia

Apple introduces new way to pay in Russia
Apple introduces new way to pay in Russia   

Apple is quietly making it easier for consumers to buy digital goods without needing a credit card.

Starting this week, Apple users in Russia can purchase music, books, games and other apps by typing in their phone number and having the items charged to their monthly bill. No plastic required.

In Russia, Apple is partnering with Beeline, the domestic unit of Amsterdam-based mobile phone company VimpelCom, according to sources with knowledge of the deal. On the payment information page within account settings, a user who chooses to pay by mobile now sees the following:

"Mobile phone billing is available in Russia for Beeline mobile customers. A verification will be sent to you."

The launch comes a month after a similar agreement in Germany with Telefonica's O2, the first deal of its kind for the iPhone maker.

Apple's long-awaited support of carrier billing provides critical validation to a technology that's been around since the early days of smartphones but has failed to gain mainstream adoption.

Boku, a San Francisco-based company that provides software and systems for carrier billing, is powering Apple's service in Germany, Russia and beyond, according to people with knowledge of the relationship.

A VimpelCom spokesperson didn't respond to a request for comment. Representatives from Apple and Boku declined to comment.

To date, the challenge with paying by phone number has been the high fees that carriers charge for transactions over their networks.

Big phone companies have commonly taken well over 10 percent, and even upwards of 30 percent, of the purchase, leaving too little margin for content and app developers to make money. By contrast, credit card fees are typically below 2 percent.

Screenshot of iPhone in Russia

However, carrier rates are coming down. Phone companies partnering with Apple are charging in the single digits, creating a greater incentive for music services, game creators and content sites to reach the 2 billion people across the globe with smartphones.

"It opens up the market significantly," said Charlene Li, an analyst at research firm Altimeter Group. "A lot more people have phones and phone accounts."

Alphabet, through the Google Play store, has carrier billing agreements in 35 countries, including with VimpelCom in Russia and all the leading phone companies in the U.S., according to its website. Microsoft said in April that paying by mobile will be available in its Windows 10 store, and Facebook has carrier deals in 60 countries for transactions via its mobile app. Spotify and Sony are among merchants that use Boku to power digital purchases.

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They all, including Apple, see the potential. According to Ovum, carrier billing revenue will jump to $24.7 billion in 2019 from $14.5 billion last year.

While credit cards are dominant in the U.S., the rest of the world is different. Across much of Europe, cash is still a preferred method for buying physical goods and smartphone adoption is becoming ubiquitous. Thus, paying by phone creates a much bigger market.

The simplicity of typing in a phone number and then storing it to create one-click payments is proving to be good for business. Conversion rates, or the number of transactions that are started and completed, are more than 30 times higher than with credit cards in some instances, data from Juniper Research shows.

Apple can afford to be deliberate as it opens up carrier billing because it's still a device company. IPhones, iPads and Mac computers accounted for 87 percent of the company's $233.7 billion in fiscal 2015 revenue. Services, which includes revenue from iTunes, the App Store and Apple Music, accounted for just 8.5 percent.

And within iTunes, the Cupertino, California-based company has developed a long-standing relationship with consumers that it may be reluctant to hand off to carriers given the sensitivity around payments, Altimeter's Li said.

"Apple is famously independent and doesn't want to rely on anyone or have to deal with their privacy concerns," Li said. "Having another company handle billing and have the primary relationship with somebody is tenuous."