How One Greek Company Has Perfected The Ecommerce Model In Emerging Markets

The world is a big place full of people.

That might seem like a redundant and obvious statement. And it is. But the fact that the world is massive and full of people is often lost on entrepreneurs in the United States. New companies often focus on building bases in the affluent, English-speaking markets. Those people have money and don’t blink at downloading an app for $0.99 or paying $9.99 a month for a Netflix or Spotify subscription.

The entrepreneurial focus on developed markets is one of the causes of the widening income and quality-of-life gap across the globe. Residents in the U.S. and Western Europe get all the benefits of mature ecosystems. The concept of disposable income in emerging markets is foreign.

But that doesn’t mean people in places like sub-Saharan Africa, Brazil, Indonesia, Myanmar, the Philippines or Vietnam don’t have money or the need of services, games and entertainment. It just means that the model to reach those people needs to be fundamentally different than what people in the U.S. or Europe are accustomed.

One company—Athens-based Upstream—has developed a blueprint for how companies can reach people in emerging markets. Upstream partners with cellular operators and service providers to reach people in developing countries, providing a mobile commerce model that may not make sense in the U.S., but may just be perfect for the rest of the world.

The Power Of The Operators

Upstream sits at the crux of three groups: mobile network operators, content/service providers and consumers.

In most of the world, the presence of credit or debit cards is an anomaly. A 2014 World Bank study (PDF, page 17) states that only 13% of all adults in developing countries have debit cards (10% for credit cards). And yet, a phone (be it a smart or feature phone) is nearly a must-have for every adult on the planet. According to Statista, 4.77 billion people will have a mobile phone in 2017 (2.3 billion or so smartphones).

Cash is the rule for most developing countries. The payments industry usually cites the stat that 85% of global transactions (by volume) are made in cash. The surface area for digital payments in emerging markets is small, but growing.

The network operators are key figures here. Many people in developing countries buy phones—minutes, texts, data—as prepaid services. In an ecosystem that lacks bank accounts and financial institutions, people usually have an account balance through their phones.

“[The operators] effectively provide the only ubiquitous digital currency in emerging markets,” said Kostas Kastanis, head of strategy at Upstream, in an interview at Mobile World Congress 2017 in Barcelona. “The typical balance that you find in someone’s prepaid phone is one to two dollars. It is not more than that. If you try to monetize with the price of $0.99 or $1.99 or $2.99, chances are that you won’t find the balance.”

Direct-carrier billing is a common practice around the world. Google openly suggests that Android developers institute direct-carrier billing for payments through Google Play in emerging markets. People may not be buying a fridge and paying for it through their cellular carriers, but small subscriptions for entertainment and services are normal.

Upstream taps into the mobile network operator’s various channels for customer acquisition and then uses those channels to connect consumers to subscription services and entertainment. The relationship is great for the operators. In countries like the U.S., the operators are shunned and shut out of revenue streams from value-added services (not for lack of trying) as consumers prefer the carriers to be “dumb pipes” of data. In emerging markets, operators can rectify the mistakes and missed opportunities made in mature markets by working as the hub for all digital services and payments.

“To the MNOs, it offers them a fair share in the digital ecosystem, something that has been lost in the west,” said Kastanis. “But in emerging markets where they do have some assets that are relevant, we believe there is space for mobile operators and we help them make sure that space belongs to them while also creating new revenue streams other than traditional voice and data.”

A Whole Lot Of Nickels Add Up, Eventually

On the other side of the equation are service, content and entertainment providers that want to reach the mass of people in emerging markets. What Upstream does is act as the commerce, payments and marketing conduit for these companies to reach mobile users in developing countries.

This is where things get … complex. Upstream takes on all of the work for its content/service partners in dealing with local policies, regulations, language, marketing, customer acquisition, payments and subscription management.

“We are actually a risk-free shortcut for them to enter into emerging markets,” said Kastanis. “By helping them with customizing their offering, by helping them with customer acquisition and with payment. We are effectively a one-stop shop for them. They don’t need to go to someone to find the customers. Someone else to provide them with the payment solution and try to figure out what the products would look like by themselves. We are doing all of that for them and it is a risk-free shortcut for them because, effectively, they don’t have to invest in anything.”

Upstream says that its average revenue per user is about three dollars, spread across eight months. That means that consumers are paying five to 10 cents a week or every other week. Sometimes that is for entertainment and games. Other times it is for things like, “micro insurance,” English-as-a-second-language classes or healthcare services.

In 2016, Upstream had 80 million subscribers across the world who spent $237 million on mobile commerce solutions. That money is split between the carriers, content providers and Upstream. The goal is to hit $500 million in transactions in the next three years. The only way to do that will be to increase scale, because the average revenue per user in emerging markets is not likely to increase any time soon.

“We are defining ourselves as a mobile commerce enablement platform for digital goods and services,” said Kastanis. “With smartphone penetration in the realm of 25 to 30 percent, if you are only delivering through an app, you are actually missing an opportunity that is three-times bigger.”