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July 31, 2009updated 04 Apr 2017 4:17pm

Vesta looks to Europe for major growth

Focused on direct prepaid payments solutions for mobile network operators, Vesta has an impressive customer base, particularly in the US and China

By Verdict Staff

Focused on direct prepaid payments solutions for mobile network operators, Vesta has an impressive customer base, particularly in the US and China. Vesta is now turning its attention to Europe where it sees a major opportunity to assist network operators enhance both revenues and customer retention.

For mobile network operators (MNO) two key performance objectives are to increase both average revenue per user (ARPU) and customer retention rates. However, in an industry moving towards an advanced stage of its growth cycle characterised by intense competition, many MNOs are finding these objectives progressively more difficult to attain.

Specifically, in the prepaid sector of the mobile industry US payments technology developer and service provider Vesta Corporation believes there is a solution to the challenge of upping ARPUs and reducing customer churn. The solution, Joshua Rush, Vesta’s director of marketing, told EPI, lies in MNOs taking control of top-up payments which are now very much in the domain of retailers and banks.

For Vesta, provision of top-up payment services by MNOs represents a significant growth opportunity and one for which the company has been developing and supplying technology solutions since its founding in 1995.

“Vesta has its roots in the prepaid industry,” stressed Rush.

Vesta’s solutions enable consumers to top-up via a variety of channels: live agent, internet, short message service (SMS), handset application and interactive voice response.

Indicative of the potential financial benefits to be had by MNOs adopting a direct top-up strategy, Vesta’s chief marketing officer Chris Parsons noted that commissions earned by retailers on top-ups range from 7 percent to 14 percent or even higher.

Also indicative of potential gains for MNOs going the direct top-up route, a study conducted for Vesta revealed that a major European MNO achieved a 20 percent reduction in customer churn and a 50 percent increase in ARPU among customers using direct top-up compared with those buying airtime in the retail market.

Among the most significant gains to be had are those derived by MNOs offering direct handset application top-ups. Based on data collected by Vesta this solution can increase top-up frequency by up to 80 percent and ARPU by almost a quarter.

Vesta’s first significant achievement in the mobile top-up market was the successful deployment of a credit card-based account top-up solution. Building on its success in the US, Vesta embarked on an international expansion strategy in 2000 and in its first move forged a development alliance with Chinese mobile payments specialist ChinaDotMan which it went on to acquire in 2005.

With its vast mobile phone user base China has proved to be the ideal environment to develop and test new payment technologies. Among Vesta’s more recent achievements in this respect is in what Rush termed the “emerging technology” of direct handset application top-ups.

For its achievement in this area Vesta was in 2008 received the Best New Product or Service, Telecommunications award in the American Business Awards, an annual event that recognises innovative achievements by US companies in a wide range of industries.

The specific technology developed by Vesta was patented in 2007 as the OneButton Recharge and enables mobile users to top-up their prepaid accounts directly through their handset. The solution, which functions as an internet or SMS-based application, provides an interface with the customer, manages the transaction, screens for fraud and adds funds in real time to the customer’s mobile account.

For MNO customers a direct handset service such as OneButton is the fastest and most intuitive to use, commented Rush.

Technological excellence has enabled Vesta to garner an impressive lineup of mobile-network and fixed-line customers. In the US, major customers include AT&T Mobile, AT&T Long Distance, Boost Mobile, Cincinnati Bell, Sprint, SunCom, Qwest and Verizon.

Impressive customer base

In China, Vesta boasts as customers China Mobile, the world’s biggest MNO in terms of users, China Unicom, the world’s third-largest MNO, and China Telecom, China’s largest fixed-line operator.

In 2005 Vesta turned its attention to Western Europe, where it established a presence with the launch of Vesta Payment Solutions in Ireland as a dedicated operations centre to support phone account top-up for European MNOs. This move has enabled Vesta to add a number of major European MNOs to its customer base including O2, Tele2, T-Mobile and Vodafone.

However, Vesta is only scratching the surface of the potential in Western Europe, a market comprising 23 countries and, according to UK research firm Informa Telecoms & Media (ITM), 274 million prepaid subscribers who spent $55.7 billion on prepaid airtime in 2007. In comparison, the North American mobile prepaid market generated just under $10 billion in 2007.

In preparation for its expansion drive into Western Europe, Vesta commissioned telecoms consulting firm Northstream to undertake an in-depth study of market potential. As part of the study – undertaken between March and June 2009 – Northstream interviewed major MNOs across Europe.

Summing up Northstream’s findings Rush said: “Mobile network operators in Western Europe are at the point of needing a direct top-up solution. The potential for Vesta is significant.”

In its assessment, Northstream noted that it estimates that direct top-ups could improve Western Europe’s mobile phone industry’s prepaid profitability by “hundreds of millions of euro annually” and would flow from lower channel cost, more frequent top-ups and reduced churn. According to Northstream, direct operator top-up channels cost about 5 percent to 6 percent of revenue earned to operate.

MNOs aim of attracting customers to the direct top-up channel is being assisted by an increasingly supportive payments environment in Europe, noted Northstream. Among positive factors are a rise in the popularity of cards and a more conducive regulatory environment being created by European Union initiatives such as the Single Euro Payments Area.

In addition, said Parsons, increasing use of the internet for banking and payments purposes is increasing its attractiveness as a means of undertaking tops-ups.

“Many consumers have no desire to interact with the retail channel,” he stressed.

Mobile operator interest high

Indicative of the desire to enhance their top-up revenues, Rush noted that that two-thirds of European MNOs are now working on direct top-up solutions. Northstream’s interviews revealed that an even higher 91 percent of MNOs believe there is a need to strengthen the way top-up fits into their online or other operator-controlled channels.

But at present there is still considerable work to be done by MNOs. Northstream emphasised that prepaid business is still retail-dominated in most countries, with over 60 percent of top-ups undertaken in a retail environment.

However, there is a clear desire by many MNO prepaid customers to alter this balance in favour of direct operators. This was evident in a survey of British consumers conducted by Northstream.

In the survey Northstream found that 61 percent of respondents use the retail channel for top-up, 31 percent use direct operator top-up services and the 8 percent balance bank channels such as ATMs. However, if provided with suitable direct operator top-up alternatives 43 percent of respondents said they would use the channel. Retail outlets would be the losers with 49 percent of respondents likely to continue using this channel. Bank channel use would remain unchanged at 8 percent of consumers.

For MNOs wanting to deploy a direct top-up solution there are two choices: build their own or outsource the service.

MNOs choosing to build their own direct top-up solution face a number of challenges, including the financial risk involved in becoming the merchant of record, said Parsons. It is extremely difficult for MNOs to seek redress in the case of payment default and fraud, he added.

Adding to this risk is that mobile top-up customers expect prompt service. Parsons said some MNOs that have attempted to go the direct top-up route on their own implemented cumbersome security measures such as phone interviews with customers seeking to use the service.

“Customers are put off and inclined just to hang-up,” said Parsons.

For direct top-up to be effective it is all about optimising customer convenience, he stressed.

Towards this end MNOs choosing to outsource their direct top-up services to specialists such as Vesta enjoy a number of advantages compared with the go-it-alone route. “Vesta does the payment processing and takes the fraud risk,” said Rush.

There is another factor strongly in favour of the outsource route: the economic recession griping Europe.

“Operators are struggling to build-out direct top-up channels given the reduction in their IT budgets,” said Parsons.

He continued that those MNOs that do grasp the opportunity to offer an efficient direct top-up service will reap the benefits not only in terms of ARPU enhancement and lower customer churn but also in the form of potential new services.

Once a MNO has a top-up platform in place it can be used as the foundation for additional services, said Parsons. Effectively, he added, the MNO will have at its disposal all that is needed for a mobile wallet of which top-ups are just the first service. The next step includes using the platform to purchase mobile content and for person-to-person payments.

Global ambitions

Western Europe forms part of what Rush noted is Vesta’s strategy to expand globally in the pre-paid market. And undoubtedly it is a market with considerable growth potential.

With the exception of North America the prepaid market overtook the contract market several years ago and continues to outpace it by a significant margin. Indicative of growth in the prepaid market, ITM estimates that there were 2.33 billion prepaid mobile subscribers at the end of 2007, a total that had grown to 2.52 billion by mid-2008 and will, it forecasts, reach 3.93 billion by the end of 2013.

This growth will, estimates ITM, see the proportion of prepaid subscriptions rise from 70.5 percent of total mobile subscriptions in 2007 to 74 percent in 2013 while total prepaid revenue earned by MNOs from prepaid services will increase from $242 billion in 2007 to $382 billion in 2013.

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