Prepaid Risks

Published on December 2016 | Categories: Documents | Downloads: 60 | Comments: 0 | Views: 395
of 3
Download PDF   Embed   Report

Understanding and dealing with pre-paid service risks in theTelecommunications, Media and Entertainment sectors

Comments

Content

Business Issues

Pre-paid Communications Risks
Understanding and dealing with pre-paid service risks in the Telecommunications, Media and Entertainment sectors

In the Telecommunications, Media and Entertainment sectors, products and services are sold on both pre-paid and post-paid terms. Prepaid services bring a number of potential benefits but many Service Providers operate under the impression that pre-paid services are risk-free – nothing could be further from the truth. There are a number of risks and issues that need to be considered and actively managed to assure good profitability and customer experience. The main issue in a highly-competitive market is that of price-sensitive customer churn; price wars lead to reduced profitability and can be almost impossible to reverse. For start-ups, this can be particularly challenging as competitors may choose to operate at exceptionally low-margin to retain market share and create a difficult environment for new market-challengers. Considering the challenges to profitability that market conditions can bring, managing risk within pre-paid service operations is essential to assure the bottom-line. Most of these risks and issues are within the control of the Service Provider, and are therefore manageable to a significant degree. Various estimates assess the potential for revenue loss on pre-paid services to range between 3-11% of revenue. Specific products may even go much higher than that; one notable example approaching 25% of revenues for specific data services. Bringing a significant portion of these ‘lost’ revenues back into play might mean the difference between success and failure of the business.

The issues
Pre-paid services have certain advantages:



Up-front customer payment helps cash-flow and rem oves (c onsum er) credit management overheads for the Service Provider Tangible cost management for the customer Access to low-ARPU (Average Revenue Per User) market segments in volume enough to create decent profitability High-volume service penetration builds a strong brand presence that can be leveraged Guaranteed services revenue for pay-per-use

 





There are disadvantages in many markets for both the Service Provider and customer of pre-paid over post-paid services which are generally higher -ARPU and more feature rich. However, given the benefits that high-volume market penetration brings, pre-paid services are here to stay and are likely to expand in service flexibility and offerings over time. Ultimately, pre-paid may simply be regarded as an option alongside post-paid where service components and charges are equal, and the payment method is left to customer choice. Greater use of hybrid models will probably be a forerunner to help manage payment-risk, e.g. combining pre-payment for pay-per-use or premium services on a post-pay account. Managing churn whilst sustaining a profitable service can be a major issue; even in markets where hardware is ‘locked’ to the Service Provider, unlocking services are just a few dollars and any hardware subsidy applied hoping to

1
Business Assurance | Revenue Assurance | Fraud Management | Receivables Management

Business Issues

Pre-paid Communications Risks
Understanding and dealing with pre-paid service risks in the Telecommunications, Media and Entertainment sectors

generate loyalty is increasingly misplacedoptimism (but does increase the overall size of the market from which all Service Providers can benefit). The grey-market for hardware is omnipresent and is often considered an advantage in boosting overall service utilisation, especially pre -paid. However, as the regulatory grip tightens as economies evolve, grey-markets will come under increased pressure which may in turn place pressure on profitability for the Service Providers.

statements or on-line access to usage charges). Common issues include rating/charging data errors in the pre-paid product or IN platforms, missing or incorrect service subscription components (e.g. a feature is being used but not charged), service usage data integrity problems (e.g. different usage periods/times recorded in different network components), clock-misalignment on network component and Operational Support Systems preventing correct record stitching, processing rule errors, inappropriate error-file management...the list goes on. In reality, the fact that pre-paid is a ‘real-time’ value management service, consumers will not allow reclaim of charges where errors are detected by Service Providers post-use. The luxury of a billing period to review and adjust inconsistencies in billing data, or recover charges from loyal customers, is simply not there; lost revenue is usually lost forever. A common misconception is that pre-paid services are fraud-free. However, the opportunity for fraud is significant and weaknesses will be exploited to the full. Unfortunately, many risks are more easily exploited by those with privileged access to the service components; employees and service partners. There are several avenues for fraud including security/integrity of the end-to-end value management chain (e.g. value recharge numbers may be made visible or generated and issued without payment), pre-paid platforms or recharge mechanisms may be open to adjustment of values, voucher-packaging may allow theft of the recharge codes, service partners might duplicate batches of vouchers or numbers, service cloning, serviceplatform or user-interface commands suppressing value decrement on use etc. The risks are quite extensive and detailed analysis of operations is needed to identify and control those risks that can be business-critical.

What are the common problems leading to pre-paid risk exposure?
Pre-paid is subject to similar revenue leakage and cost exposure risks as post-paid. In fact, because pre-paid often does not get the attention that prepaid does for Revenue and Cost Assurance within a Service Provider, the losses can be significantly higher overall. As there is often no billing system per-se, many believe that the pre-paid cash collected is all they need to worry about (recovering cash from agents, credit-card issuers etc. which also has its issues). This assumption is fundamentally wrong! All the components of post-pay exist in pre-pay except the actual customer-billing part (and even then some Service Providers may offer charge

2
Business Assurance | Revenue Assurance | Fraud Management | Receivables Management

Business Issues

Pre-paid Communications Risks
Understanding and dealing with pre-paid service risks in the Telecommunications, Media and Entertainment sectors

One of the more common issues, that may be fraud or process failure, is that of pre-paid to postpaid conversion of customer accounts. Where customers are converted to post-paid in network systems, but not made ‘billable’ within the postpaid billing systems, there is a gap that is sometimes not examined. In one case, major internal fraud developed around this specific theme resulting in 11% revenue loss. And as more services become dependent on credit -cards for payment (especially on-line), credit-card (payment-card) fraud starts to have an impact and charge-backs to the Service Provider offset revenues.

Managing the problem
The first item on the agenda is to get pre-paid recognised as a risk area. Unless there is an acceptance of loss and potential gain to the business, support to management control will be hard to come by. Investigating some of the issues outlined herein may help identify some specific examples, but a full risk assessment is recommended to really pin-down the problems and devise cost-effective controls. However, commonsense should prevail and a simple and structured approach will generate good results. Systems-automation of key aspects such as Revenue Assurance or Fraud Management should also be considered within the strategy – being a real-time value service requires real-time detection and response. Clearly, prevention should also prevail and including appropriate inputs to the design, build or change of pre-paid services is essential to manage risk and control losses. Given the thin margins that many pre-paid services operate on, Business Assurance activities should be considered fundamental to the operation. Unprofitable or low-margin services can be turnedaround with a solid approach. Unfortunately, many organisations will focus on market growth over profitability; the answer is to balance both acquisition and Business Assurance activities to really bring in the value that is possible. Please refer to the Services, Solutions and Packages pages of our web-site for a more detailed perspective of the components that might be deployed within a strategic plan. Alternatively, Contact Us to discuss your precise needs.

How do you know if you have a problem?
Unless you look specifically, often you will not find out easily that there is a problem. However, broad profitability analytics should provide indicators to loss that should then be used as a basis for rootcause analysis. Customer and agent complaints should also be analysed to help identify potentially systematic charging errors or fraud problems. There are specific audit-points, reconciliations and reports from platforms/systems that will help identify specific issues and that may be established at little or no cost to the Service Provider. However, in-depth proactive scrutiny is often required to identify specific risks and controls. Including pre-paid as a high-priority in the Business Assurance framework is a must.

3
Business Assurance | Revenue Assurance | Fraud Management | Receivables Management

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close