The UK’s phone paid services market is expected to grow to £619m in 2023 and 2024 driven by further increases in consumer spending through operator billing (+9.1% year-on-year), and charity donations (+15.8%), with the return of the Stand Up to Cancer telethon expected to generate increased donations.
User spending via premium SMS will be very similar to spending in 2022-2023 (–0.1%), and all other payment channels will decline in comparison with 2022–2023 because online platforms and digital payment mechanisms will continue to divert payments from phone-paid services.
According to predictions in the latest industry report by Analysis Mason for the Phone-Paid Services Authority (PSA) – the industry’s regulator in the UK – spending on operator billing will reach £321.0 million (+9.1% year-on-year), maintaining its position as the largest phone-paid services payment channel. By 2023–2024, the report says it expects operator billing will account for more than half of all payments made on phone-paid service channels (51.9%, up from 49.6% in 2022–2023).
Premium SMS spending is expected to remain relatively steady in 2023-2024, declining at a rate of 0.1% year-on-year to £188.5 million, significantly slower than in 2022–2023, when it was –3.5% year-on-year. The report forecasts that charity donations will grow by 15.8% year-on-year to reach £41.6 million in 2023–2024, but consumer spending via all other payment channels will decline.
The market share of voice 09, 118 and 087 numbers combined with voice short codes will fall from 12.6% in 2022–2023 to an estimated 11.0% in 2023–2024.
TV to drive DCB use
The largest segment for DCB spend will come from TV and entertainment, just ahead of that of games, which dominated DCB spend in 2022-23. Consumer spending on TV and radio engagement will increase by £1.8 million. This is because competitions will be run all year in contrast to the interruptions in fundraising during September 2022 as a result of a two-week break from competitions due to national mourning, and the subsequent halting of momentum, says the report.
However, declining TV viewership and the ongoing transition of radio and TV broadcast competitions to online platforms will slightly reduce the scale of this increase. Industry stakeholders expect this year’s trend of growing radio listenership to continue, but they also reported radio broadcasters’ plans to grow their online platforms, which will divert consumer spend away from phone-paid services and towards other payment mechanisms.
Spending on games is expected to increase by £19.9 million to a total of £162.3 million. The main drivers of this expected growth are the continued growth of in the number of games and the increasing acceptance of operator billing as a payment method for these services. The growth rate in 2023–2024 will be lower than in 2022–2023 when new and existing partnerships between Apple and operators (including Vodafone and Three) helped to drive growth.
However, these partnerships will remain a key contributor to the expected growth next year, as industry stakeholders expect to see an increasing number of consumers paying for games through Apple’s App Store using operator billing. Industry stakeholders also mentioned in interviews that one-off payments for gaming subscriptions will become a key growth area.
User spending on entertainment services will grow by £3.6 million. This forecasted increase is driven by anticipated new partnerships between video-on-demand providers and operators. These agreements are likely to emerge as intensifying competition in the video streaming market will incentivise market players to expand the range of payment mechanisms that they offer subscribers.
Similarly, to games, service providers will focus on increasing the number of subscriptions that can be taken using one-off payments. One operator mentioned that they will continue to bundle streaming services in an attempt to increase revenue.
Spending on all other services, including assistance services, betting, gambling and lotteries, sexual entertainment and personal and relationship services, will decline by £8.7 million. Within these services, assistance services are expected to decline by £4.4 million, a continuation of previous trends. Betting, gambling and lotteries are expected to remain more or less static, with a £0.3 million decline in end-user spending forecast. This can be explained by the limited appetite from merchants, service providers and operators to onboard and promote gambling services due to the PSD2 spending limitation and other perceived regulatory pressures. Personal and relationship services and sexual entertainment services are expected to decline by £0.7 million each, as the use of these legacy services gradually erodes in favour of online platforms.
The study takes a look ahead to how the market in the UK may shape up beyond 2024 and offers some encouraging predictions. The report says: “We forecast that between 2022–2023 and 2025–2026, the phone-paid services market will grow at a CAGR of 2.8% to reach £644.5 million in user spending by the end of the forecast period. Steady growth in operator billing and biannual growth in charity donations will drive this overall increase, with the former due to continued increases in consumer spending on games and the latter due to growing donations following the alleviation of the cost-of-living crisis. Spending via all other payment mechanisms will continue to decline, as legacy services reach their core user bases and TV and radio broadcast competitions move to online platforms.”
The study predicts that operator billing will remain the largest phone-paid service spending channel, growing to account for 54.4% (or £340.0 million) of total user spending in 2024–2025 and 55.1% (£355.0 million) of total spending in 2025– 2026. The proportion of phone-paid service spending via premium SMS will, however, decrease annually to 29.9% (£186.6 million) of total spending in 2024–2025 and 28.6% (£184.6 million) in 2025–2026.
All other payment channels will see reduced consumer spending between 2022–2023 and 2025–2026, except charity donations which will increase every other year (as discussed in Section 6.1 above). Voice-based payment channels will account for 10.0% of the phone-paid services market in 2024–2025 and 9.1% in 2025–2026. Figure 6.2 provides a breakdown of consumer spending by payment channel.