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The monetization of A2P SMS services is a critical topic within the messaging industry. The current trend of introducing higher termination rates might bring short-term financial gains, but it poses significant risks to long-term revenue sustainability and the integrity of the messaging ecosystem.

SMS remains a hugely valuable channel for brands, boasting one of the highest engagement rates among communication methods. Despite the growing popularity of other channels, research shows that SMS still leads the charge in terms of engagement.

However, the spiraling costs are a deterrent, especially for businesses that have not yet tapped into SMS for customer communication. The industry must recognize the potential damage being done and make concerted efforts to address these challenges.

The Impact of Rising Termination Rates

One of the most pressing issues facing messaging is the escalation of A2P SMS termination rates. According to Mobilesquared, the average cost to send an A2P SMS internationally has doubled since 2021. This increase is reflected in the actions of MNOs – 90% have raised their international SMS fees, with over one-third increasing their rates by more than 100% and some (3.9%) raising rates by more than 500%.

Such dramatic price hikes force enterprises to pay over $0.25 per SMS in certain markets, driving them to seek alternative, more cost-effective communication channels. This shift not only threatens the revenue of SMS service providers, but also undermines the trust and reliability that enterprises have in SMS as a communication tool.

Real-World Consequences

High termination fees can lead to a significant increase in fraudulent activities within the industry. As termination fees rise, fraudsters find new ways to exploit the system, eroding trust among enterprises and consumers alike. Enterprises might turn away from SMS, not only to cut costs but also to avoid the risks associated with fraud.

A case in point is X’s (formerly known as Twitter) decision in 2023 to drop SMS as a 2FA option for users who do not pay a monthly subscription fee. This move came after Twitter suffered a $60 million loss due to AIT fraud, highlighting the vulnerabilities of SMS 2FA in the face of increasing messaging fraud.

The Changing Market for Authentication

Despite its widespread adoption and unmatched reach, SMS-based 2FA is increasingly viewed as a security concern. Tech giants such as Microsoft and Google are shifting towards multi-factor and app-based authentication methods. This transition underscores the need for more secure and cost-effective alternatives.

The rise in termination fees compels enterprises to reassess their A2P messaging strategies, making this shift not only a financial issue, but also a strategic one. As long as SMS 2FA remains susceptible to abuse by bad actors, enterprises will continue to search for more trustworthy and efficient delivery methods.

Potential Impact on the Messaging Ecosystem

If termination rates continue to climb, friction among operators, aggregators, and enterprises will likely intensify. This tension could lead to significant changes in the messaging ecosystem, potentially altering the foundational aspects of SMS as a reliable and cost-effective communication channel.

The messaging industry stands at a crossroads. While the short-term gains from increased termination rates might be tempting, the long-term consequences could be detrimental. It’s imperative for the industry to balance revenue generation with sustainability, ensuring that SMS remains a trusted, reliable, and cost-effective communication channel for enterprises worldwide.

Messaging & SMS World 2024

The upcoming Messaging & SMS World conference, hosted by Capacity Media, taking place in London on June 4th & 5th 2024, will feature a discussion panel titled “Drivers & Detractors for SMS Monetisation Models”. Richard Lemmers, Chief Commercial Officer at Openmind Networks, will join this panel to explore the future of SMS monetization and its broader implications for the messaging industry.

This panel promises to provide invaluable insights from key players across the value chain, offering diverse perspectives on how to navigate and optimize SMS monetization amidst these challenges. Attendees will gain a deeper understanding of the current issues, explore potential solutions, and forecast the future of SMS in an ever-changing market.

If you’re attending Messaging & SMS World, make the most of your experience by scheduling a meeting with the messaging experts from Openmind Networks.

To learn more about the topics covered in this article, or to discuss how Openmind Networks can help you navigate the future of business messaging, please get in touch or contact our team of messaging experts online here.

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