Why the mobile VAS industry needs blockchain so badly
In case you haven’t heard of “VAS” before, it stands for “Value Added Services”. It is actually a telecommunications industry term used to describe products beyond the telco’s core services: voice call, SMS and mobile data.
VAS encompasses a slew of entertainment products such as mobile games, video streaming apps, social media platforms, music downloads, chat, MMS wallpapers, and info-on-demand services. If you own a mobile phone, there is a high chance you have tried at least one form of VAS at least once in your lifetime.
Massive Growth
Because of the exponential increase mobile phone penetration rate worldwide (currently at 68%, increasing 4% year-on-year), coupled with the constant lowering cost of smartphone handsets and mobile data, the VAS industry has seen massive growth these past few years.
Adoption in emerging markets like the Philippines, Indonesia, Thailand, and India has been much faster. Dominated by prepaid users, most people from these markets did not use to have access to online content because internet connection a few years back was only enjoyed by those who could afford the steep monthly fees or those who were on postpaid plans. Fortunately today, anyone can access the internet for as low as USD 0.10 per 1 GB data. In fact, according to a Bloomberg report, the Philippines has the cheapest mobile data in Asia.
The implication of all these factors put together has brought about the boom of the VAS industry. Prepaid subscribers now suddenly have a mobile data-enabled smartphone in the palm of their hands and, for the first time, these individuals have been given a key to a door that opens a whole new world of digital entertainment. Because of this phenomenal “mobile first” experience, the growth of worldwide VAS market is projected to go over USD 700 Billion worldwide by 2020.
Vanishing credits and mysterious subscriptions
Sadly, there is a “dark side” to VAS’ massive growth: fraud and theft. In recent years, there have been a number of subscribers reporting instances of “vanishing credits” or unauthorised charges. Some even report being mysteriously subscribed to a service they’ve never even heard of…how could this happen?
Before you start pointing fingers, you need to understand that telcos do not solely produce all of the value added services they offer to their customers. That would take away much of their valuable resources, devoted to improving their core services.
To save on time and manpower, telcos normally partner with hundreds of third party companies that each offer a plethora of products and services on their behalf. According to Statista, as of June 2017 there have been 180 billion apps downloaded from Apple App Store alone — and this is just one of the many providers of value added services partnered with each telco.
Because there are multiple vendors that each log in millions of transactions per day, it is inevitable for some erroneous transactions to slip by — some may have been done by accident due to programming errors, some may have been caused by uncaught application bugs, maybe some were just caused by human error or worse, negligence (Reminder: never let your kid play with your cell phone unsupervised), and yes, some may have been slipped in on purpose by bad actors in the industry. But regardless of the cause, consumers usually perceive any form of unauthorised charges as an intentional act against them. Hence, the notorious “vanishing credits” complaint.
This is one of the industry’s biggest problems and telcos have been constantly trying to find a way to solve it. Almost every year, the compliance group would release new guidelines for third party VAS providers that cite stricter penalties for proven instances of fraud or negligence. Technical platform improvements have also been set in place, supposedly to safeguard each transaction against unauthorised charges.
However, despite all this effort, telco customer service hotlines are still as busy as ever. Complaints have been pouring out on social media as well. Until this day, the problem of efficiently safeguarding transactions is not yet fully resolved. This, we believe, is exactly the opportunity that blockchain technology can address.
Applying Blockchain to VAS
If telcos can provide their customers a way to check their own activity anytime, anywhere and if those logs are known to be unalterable by anyone (it is claimed that even the smartest hacker cannot beat the technology), then you’ll have more subscribers who will patronize value added services.
This is why the industry needs blockchain so badly.
Layering an immutable and trustless ledger system like blockchain into every single action, request or delivery of digital product can help solve the problem of “vanishing credits”.
But of course, blockchain alone cannot extinguish all consumer complaints. Clear marketing communication coupled with great quality of products and services need to be in place. For example, a subscriber may have clicked a button or said yes to a service that either wasn’t clearly explained to him or wasn’t aligned to his expectations. In both of these situations, though the transaction is technically not erroneous, the consumer can still file a complaint about the quality of product or service he received.
At what price?
Since blockchain technology is still in its early stages, admittedly there is a drawback to applying it in real world scenarios at its current state.
Scalability is one of the biggest issues that blockchain proponents are trying to address. As mentioned earlier, telcos process millions and millions of transactions per day. If the technology cannot handle the massive volume requirement of VAS, then consumer experience will be horrible. Imagine having to wait several minutes just to verify a password during registration, wouldn’t that turn you off and cause you to forego the whole process altogether?
Cost is also another issue faced by the technology. As you know, every single transaction made in the blockchain requires a certain amount of “gas” before it can be completely processed. This will effectively jack up the prices of digital goods being sold just to cover the fees. Maybe that’s okay if the product cost is significantly bigger than the gas fees, like maybe a USD 1 mobile app or a USD 10 gaming credit.
This is a problem if you talk about VAS products being sold in emerging markets, where games are sold as low as USD 0.10 and infotainment products can be bought at USD 0.02. For perspective, the standard gas fee in Ethereum at the moment is at USD 0.017 per transaction!
In conclusion, blockchain technology will indeed resolve a lot of problems of the VAS industry, but it needs a little more time to fix its own issues on cost and scalability first.
Hybrid model as a temporary solution
XONIO is a platform that aims to apply blockchain into value added services to help solve the issues that the industry faces. It acknowledges the current limitations of the technology, hence proposes a hybrid on-chain and off-chain solution as a temporary answer.
As an early iteration of the platform, microtransactions in XONIO will be collated in bulk before being posted as one block in the public blockchain. This allows for high velocity transactions without the implications compounded gas fees.
Once it becomes economically favourable to migrate into a full blockchain implementation, Xonio will update its platform accordingly.
Do you agree this is the solution that the VAS industry has been looking for?
For more info, visit www.xon.io. Join the community on Telegram.
