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The ‘Internet of Things’ is the Game-Changing Next Step for Telcos… But What Are They Missing?

As revenues continue to decline in telcos’ traditional core business – calls, data and roaming fees – it is understandable that IoT is being hailed as a natural progression for the telco industry, which is undoubtedly well-positioned to take advantage of the sizable growth opportunity.

So exactly how big is this IoT opportunity?

The numbers seem to change with each new report published, but I’ve picked up on a couple of figures that I think put the opportunity into perspective. One is that each household will have a minimum of 20 connected devices talking to networks by 2020, and that every square mile will have 600 million devices sending small bursts of information. Research from Edgar, Dunn & Company estimates that the number of IoT devices in use by consumers (e.g. wearables, smart home appliances and connected cars) will rise from 4 billion in 2016 to 13.5 billion in 2020 – a threefold rise in only four years!

We can see the early signs of this growing trend, with vending machines re-ordering stock automatically, engineers being sent to failing air con units before they actually fail and the sharp rise in voice-activated connected devices in the average family home. All these things are merely the forerunners for things to come (notwithstanding the constant hype and media coverage around driverless cars).

But what are telcos doing to jump on this opportunity – and what are the challenges they face?

The IoT market is currently viewed in terms of four main pillars:

  1. Spectrum (the bandwidth to deliver IoT)
  2. Commoditization
  3. Payments infrastructure
  4. Fraud and security

From my experience in working with large telcos, it seems that the industry is just focusing on spectrum and commoditization – in other words, how telcos can physically enable IoT technology. Ensuring that the IoT devices operate using low bandwidth transmitters is a critical consideration, as is ensuring that the telco systems themselves have the vast bandwidth needed to carry billions of additional communications per day. With the huge challenges to address in their bid to commercialize the IoT opportunity, it’s understandable that this commands much of the attention of telcos.

The problem is, that in the face of the challenge in addressing these first two pillars, most telcos have not yet progressed to looking at how they will take payments or how they will secure these payments against fraud and risk. Nor are they looking at the impact that the immense volume of transactions might have on their payments infrastructure.

While the list of potential IoT devices is almost endless, all these devices will be communicating via an embedded eSIM i-Sim – and will likely pass on multiple transactions per day. Telcos looking to support IoT services need to ensure they select a payments gateway that supports any type of device and any method of communication, and can support mass volume transactions without disruption to the user experience. Beyond that, it will also be critical to factor in considerations such as availability of a range of payment methods, to ensure mass appeal and consumer convenience.

Of course, it is also vital to ensure that all payments made via IoT devices are secure; fraud should be screened in real-time to minimize risk, delivering a seamless experience and supporting sustained customer adoption.

Payment authorization shouldn’t be overlooked

Lastly – and arguably most importantly – telcos need to make sure the payments solution they put in place can push final confirmation of an IoT purchase back to the consumer, before payment is taken.

Imagine, for example, your smart fridge automatically orders a replacement pack of beer every time you take four out. ”Brilliant!” you might be thinking. In theory, this sounds great, but in reality, there is too much room for error, with consumers easily losing control of both their fridge contents and their money. The best approach is to have a final point of authorization for each payment. This can easily be done in a fast and convenient way that doesn’t disrupt the experience for the customer – a simple SMS or biometric authorization method can work as a final, but important checkpoint in the process, helping to prevent disputes and disgruntled (and potentially inebriated) customers.

With the payments and fraud elements of the IoT forming such a critical part of the path to profitability, telcos will benefit from working with expert partners that can provide a robust, cloud-based platform with ready access to a range of geographies and payment methods, along with pricing packages that are specifically geared for IoT – reflecting of the very specific nature of these transactions.

ACI has a wealth of experience working with telcos around the world and offers a specific IoT service that delivers against the ‘must-haves.’ If you would like to learn more, please contact Chris Curd or visit our Telecommunications page.

Payments Expert

ACI Worldwide powers electronic payments for financial institutions, retailers and processors around the world with its broad and integrated suite of electronic payment software.