Case study: SMART
Communications | Mobile payment
Outsmarting the competition
Smart Communications, the Philippines’ mobile telecommunications market leader, has harnessed GFG Group’s electronic payment expertise to dramatically increase its market share, profitability and customer loyalty.
Today, Smart is the mobile communications market leader in the Philippines. Much of this success is due to its ability to innovate – and in particular to innovate in being first to market with new and easier ways for their customers to make payments using their cellphones.
In a society where around 90 percent of all transactions are made in cash, mobile operators – including Smart – have traditionally offered their customers prepaid scratch-cards. Smart’s revolutionary idea was to introduce the ability for its customers to use their cellphones to make payments, not just for their cellphone time, but also for any payment where a credit card could be used.
In late 1999, Smart and GFG Group began to exchange ideas on development and architectural software design, and the project began in earnest in February 2000.
GFG Group’s industry experience meant it was able to integrate the new product with Smart’s existing systems. It also designed the applications needed to interface with Smart’s prepaid network and SMS system. The product was extended in partnership with other companies where outside expertise was required.
“SMART’s partnership with GFG, together with the full use of its products and skills, have contributed significantly to our award winning service offerings – SMART Money, E-Load and the more recent Padala [remittance]. These service offerings have given us the competitive edge in outpacing our rivals in the marketplace.”
Alex Ibasco, Mobile Commerce Group Head, SMART Communications.
The resulting mobile MasterCard Electronic product which included a micro top-up function, SMART Money went live on 15 December 2000.
From SMART Money, the SMART Load service offering was born. Using the Airtime top-up function previously developed from SMART Money coupled with the ability to do wallet to wallet transfer and merchant management, SMART Load was introduced to the market in 2003.
Scratching the costs
The introduction of SMART Load, a micro-payment product, allowed the cost of producing, providing security for and distributing scratch-cards to be done away with.
Because of their high cash value, larger quantities of scratch-cards had to be transported around the country in armoured vehicles, just like currency. Today, merchants simply transfer airtime to their customers via SMS text messaging. Selling airtime entirely over the airwaves via text-messaging removed the security risks and the considerable associated costs, making airtime as available to Filipinos as soft drinks and candy.
There was a sweetener for the merchants, too: They had always earned a commission on the sale of scratch-cards. The savings Smart created from introducing electronic top-up were translated by the company into better merchant discounts. Commissions of between 6 and 7 per cent were improved to between 13% and 15% of the transaction cost.
A menu embedded in the retailers’ SIM cards enables the transactions. And because sales are carried out over the airwaves, they can be executed both securely and remotely.
SMART Load transactions are authenticated and encrypted to the industry standards for electronic transactions.
A head start on the laggards
GFG’s industry expertise helped Smart become the local market leader. Before the introduction of SMART Load, Smart and its closest competition, Globe, were neck and neck in the Philippine telecommunications market. Now that Smart customers are able to buy airtime in denominations of as little as five-minutes at a time, Smart has taken the pole position.
Customer churn rates show no sign of allowing Globe – which has since followed with its own micro-payment product – to regain any of its lost ground. Today, Globe has around 12 million subscribers and Smart has 16.5 million – up from just 9 million only a year ago. Revenue has increased from around US$500 million to US$1 billion – and 99 per cent of this business continues to be prepaid.
Smart won twice in the GSM Association’s prestigious awards: 2001 – Award for Most Innovative GSM Wireless Service for Customers for its SMART Money and in 2004 Award for Best Mobile Application or Service – Consumer Market for its SMART Load product, and the judges’ comments are telling: “This prepaid microbusiness is very, very impressive. Not only is Smart Communications increasing its customer-base and reducing churn, it is creating employment, creating new businesses and multiplying its retail channels.”
Aside from the GSM Association, MasterCard in 2001 also recognized SMART for this pioneering endeavour of using cards and mobile phones in a unique product service offering and gave SMART – The Most Innovative Service Award for its SMART Money MasterCard Electronic.
Today, it is so embedded in Smart’s business model that SMART Money, SMART Load and the more recent SMART Padala (Remittance through mobile phones) are considered “traditional” products. These products and services are used by more than 80 per cent of Smart’s 16.5 million subscribers.