Using Premium SMS for your Digital Business? Time to Switch to New Technology

In previous years, most digital merchants offering products on the internet used Paypal, credit card, and premium SMS (PSMS) services to receive payment on their services. Recently, the traditional phone companies like AT&T, Verizon, and Century linked have jumped into the market and started to allow “Information, & Entertainment Transaction Billing (IETB) direct on home or business phone bills for select, high profile merchants.


Internet merchants have struggled with payment options for years. Today’s identity breach concerns have forced many consumers to shy away from credit card use online. Paypal’s a little better but the Consumer still either has to provide a credit card or debit card number to Paypal, or make a pre-paid deposit into the Paypal system. A little more security but still a concern to many Consumers. IETB billing is better, but as more and more people move to a mobile phone only at their home, the merchants’ reach for IETB billing continues to shrink.

So Merchants began looking for yet another payment option and started turning to the “Premium SMS’ concept.

What is “SMS”? SMS stands for “Short Message Service”. The SMS concept was created in 1984 by Friedhelm Hillebrand and Bernard Ghillebaert. SMS messages are similar to “Tweets”. Restricted to 140 characters, you are limited in your message. The SMS market quickly determined a need to send an “SMS-like” message, but have the ability to charge a fee to the recipient for a digital service, like a ringtone. This idea evolved into the “Premium SMS” (PSMS) business we all see even today. When you see something like “Text to XXXXX and instantly receive your favorite team’s latest updates for $9.99 per month”, you’re using PSMS. You get the $9.99 billed monthly to your cellular phone bill each month and all is good.

Good for the Consumer. Bad for the Merchant! In PSMS programs, the cellular carrier keeps ~45% of the product fee, and the owner of the “Short Code” (a short code for PSMS is typically 5-6 digits long and cost between $500 and $1000 per month to maintain) will usually take about 5%, leaving ~50% of the product price for the Merchant. It was OK, but not great.

Today, “Direct Carrier Billing” has been developed for mobile phone accounts and is currently available and quickly replacing PSMS programs for merchants. Current restrictions are pretty stringent as the program is in its infancy. All products must be ordered and consumed from a browser. Price points cannot exceed $29.95, but this is quite a bit better than the typical PSMS limit of $9.99. Currently, no “in-app” products will be approved.

Direct Billing allows a merchant to invoice the consumer for their digital product directly on their mobile phone bill, with returns in the 80% range. The setup process is an easy, straight forward process, with a short application and small set up fee. A merchant can be approved and billing within 30 days of application filing. The merchant gets a much improved return over the PSMS program, and gets to place a description of the product ( Example: “ACME Home Warranty Monthly Premium -- $24.95”) directly on the consumers’ mobile invoice, making adjustments less likely as the Consumer knows what the charge is for.

Drop me a message @DaveHanron on Twitter or email me @ dave.hanron@ildmail.com for more information on this new wave of payments and take advantage of “Direct Carrier Billing”