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Is LEC Billing the Next E-Wallet?

Channel Partners

February 28, 2007

6 Min Read
Is LEC Billing the Next E-Wallet?

DESPITE THE INCREASED SOPHISTICATION of the online marketplace, and the staggering growth in the number of e-commerce transactions conducted in 2006, payment acceptance limitations remain a significant issue to the digital merchant community.

The large majority of transactions conducted online are performed via credit card. Yet, according to countless consumer surveys, the security of personal information when conducting online payments remains a major concern for consumers when performing digital transactions. With the rise of identity theft, they continue to perceive serious shortcomings with today’s online payment options.

As this concern grows, reliable and safe online payment options become ever more important for digital merchants. Most consumers now think twice before paying with a credit card over the Internet, and argue that many merchants are not doing enough to protect customer information. This new consumer market is setting the stage for a change in ecommerce payment methods, creating a demand for alternative payment options.

Realizing that the Internet is an important vehicle for reaching consumers, local exchange carriers are stepping outside of traditional telephony and embracing digital content, like digital TV, ISP services and a variety of entertainment services. The evolution of LEC billing has moved beyond traditional longdistance and telecommunications services to the digital marketplace. Given these changes, it begs the question, is LEC billing a viable payment alternative for the digital content community?

As a LEC billing clearinghouse, we, at ILD, think so. A chief problem with the Internet and for digital merchants remains the limitations around payment acceptance. With nearly 160 million U.S. wireline subscribers reaching across all demographics, the traditional telephone bill appears to be a likely solution for certain online purchases and subscriptions. LEC billing provides substantially less consumer risk than credit card payments and is, therefore, a more viable option among consumers who have a legitimate fear of credit card fraud and those concerned about identity theft. With risk-management measurements in place, including validation and authentication services, fraud to the phone bill is less likely. The bill page then becomes a vehicle for digital content providers to reach those consumers who elect to not use a credit card for online payment and to those consumers who are considered “unbanked.”

According to the U.S. Federal Reserve, 23 percent of U.S. households do not own credit cards. Additionally, there are approximately 10 million U.S. households without credit cards that are online. This means there is a clear need for secure and reliable alternative payment methods for this demographic. It also means there is a market of 10 million households that, should they wish to make an online purchase, have no other option than to disclose their personal banking information, when available. In the limited cases where it is available by the merchants, these households pay for services via an automated clearinghouse (i.e., e-checks) or a service like PayPal. Ultimately, these statistics show the market for online payment alternatives, like the phone bill, are viable.

Traditional LEC billing is evolving as a feasible option for e-commerce. The largest LEC in the United States is now allowing businesses to use the phone bill page to invoice certain pre-approved information and entertainment services over the Internet. This opens up the reliable phone bill page to include payment for online services, such as music, movie and software downloads, gaming and other online communications-related services, in addition to local and long-distance telephone services.

The challenge to businesses, however, is the cost of LEC billing when compared to traditional credit card billing. On average, LEC billing can cost a merchant 1 percent to 3 percent more than a credit card transaction. However, given that these customers most likely would have abandoned the cart during the check-out process due to limited billing options, the minor incremental cost associated with such sales is reasonable.

LECs are growing aware that by accepting nontraditional charges on their invoices, there may be an opportunity for their bill page to do more — ultimately creating a stickier customer by bundling multiple services on the same bill. Even today, certain LECs let consumers pay for their satellite television through the LEC bill and offer discounts for doing so. The bundled bill page makes it less likely that the consumer will change providers or give up their dependable home phone.

We’re looking at a world of unique new marketing opportunities ahead of us as we expand the way we choose to pay for services. It certainly allows content providers, like e-entertainment (ringtones, gaming, dating, software, music, movies), e-marketing (online directory assistance, local searches, national searches) and e-business solutions (Internet service, Web hosting, voice mail) to reach the widest audience possible. In turn, this increases the stickiness of the LEC bill page, making a wireline consumer think twice before giving up that landline.

Once perceived to be declining along with traditional wireline long-distance subscribers, LEC phone billing is proving to be a viable payment option to new growth markets with substantially less consumer risk.

With the consolidation of telecommunications providers, and realignment of business models over the next five years, we will see the convergence of voice and data take shape, as VoIP and IPTV continue to evolve. Phone companies will place more focus on utilizing the billing page as a marketing and retention tool by offering multiple services on one integrated invoice. As such, we will see the addition of various communications-related paid content services billed to what was once the traditional phone bill. Like voice and data, wireline and wireless will converge, and as such paid wireless communications content like ringtones, games and cellular multimedia will be billed on what will become the “communications” bill.

Dennis Stoutenburgh is president and COO of ILD Telecommunications Inc., a provider of LEC billing and alternative payment options, such as e-checks (ACH) and micro payments — all designed to accelerate the purchasing process and enable merchants to retain more users. He can be reached via e-mail at [email protected].


Please discontinue sending PHONE+ to us.

While I expect jabs of a political nature (and know the publisher makes a disclaimer about views), I find the Lance Sterling cartoon to be misleading and unfortunate.

While personally I do not love any one political party, I would think it best not to be too slanted one way or the other. You could be a unique member of the media world and just report, rather than incite, but you’ve chosen not to follow that course. Sterling’s depiction is neither factual nor informative … therefore doesn’t lend itself to humor. Government, in general not specific, is rarely the friend of the marketplace. Both political sides have harvested on the telecom confusion, it is unfair to depict it otherwise.

Perhaps I’m overreacting … perhaps not.

—Mark Wilson, M.H. Wilson & Associates

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