The Enduring Dominance of SMS in the Digital Age: Insights from India and Beyond

Introduction

In an era marked by rapid digital transformation, the humble Short Message Service (SMS) continues to be the preferred medium for transactional notifications. Before diving deep into reasons of why SMS is still dominating as a preferred channel for sending transactional notifications, let's briefly understand what transactional notifications are.

What are transactional notifications or messages?

Transactional notifications or are automated messages sent to users to inform them of important events or transactions related to their account or service they are using. Quick examples here would be alerts for bank transactions, password resets, appointment reminders, and One-Time Passwords (OTPs) for authentication purposes.

In order to ensure you have the right frame of references, here are quick indsutry-wise examples of transactional message that you would come across as a consumer/ user on a day-to-day basis:

• Logistics and E-commerce: Real-time delivery updates, shipping confirmations, and return processing notifications.
• Banking and Finance: Transaction confirmations, balance updates, and fraud alerts.
• Utilities and Services: Payment reminders, service disruption alerts, and usage reports.

Transactional notifications play a pivotal role in the infrastructure of modern digital services, as they are essential for enhancing user experience, ensuring security, and maintaining seamless communication, . Despite the evolution of various messaging platforms, SMS's unparalleled reach, reliability, and regulatory compliance ensure its ongoing relevance, especially in India and other emerging economies.

This article dives deeper into reasons behind SMS's enduring popularity and effectiveness for delivering transactional notifications, and how it has maintained its dominance despite the growing penetration of WhatsApp and other modern messaging platforms.

8 reasons on why SMS still dominates transactional messaging

1. Accessibility and Reach

The most important reason for SMS's dominance is its unmatched accessibility. It does not require internet to deliver a message to the handset user. Despite of a significant digital push in India and other emerging economies, internet penetration still stands at approximately 45% as of 2023, leaving a considerable portion of the population beyond the reach of internet-based services.

Without internet, all other channels of communications except for SMS are literally lost. This ubiquity makes it the most inclusive method for delivering OTPs and transactional messages, ensuring no demographic is left behind in the digital divide. Without SMS, digital companies will have to potentially lose access to millions of potential users in India.

2. Simplicity and Universality

The simplicity of SMS technology is another critical factor in its widespread adoption. Its universal compatibility across devices means that users, regardless of their phone's make, model, or operating system, can receive and send SMS messages.

This simplicity extends to the user experience as well, with SMS offering a straightforward, no-frills method for receiving crucial transactional information and OTPs, fostering trust and reliability in digital transactions.

3. Reliability and Speed

SMS boasts of a reliability that is hard to match. With near-instant delivery times and a high success rate, SMS services ensure that time-sensitive information, such as OTPs for banking transactions, reaches the recipient promptly. This speed and reliability are crucial in maintaining the fluidity and security of digital transactions, contributing significantly to user satisfaction and trust in digital platforms. One may argue that WhatsApp or other digital channels are faster, but the reality of data suggests otherwise. WhatsApp's deliverability largely depends on the internet being present in user's device and being on at the time of message being sent. But SMS does not have any such dependencies, naturally making it a winner.

4. Regulatory Support and Security

In India, regulatory bodies like the Telecom Regulatory Authority of India (TRAI) have set stringent guidelines for the use of SMS in financial and other critical communications, underpinning its role as a secure and reliable channel. These regulations, coupled with the inherent security features of SMS, such as SIM-based authentication, make it a preferred choice for sensitive communications.

While WhatsApp has also advanced itself in security offerings, it is still not 100% secure as receiving WhatsApp messages does not still have SIM-based authentication. You can still receive WhatsApp on a number, the SIM card of which is configured on a different device. Hence, security-wise as well, SMS is still leading.

5. Frictionless Experience with Message Keypads

The integration of SMS with mobile operating systems allows for a seamless user experience, particularly with the auto-reading of OTPs. This feature eliminates the need for users to switch between apps, reducing friction and potential transaction drop-offs. The direct reading capability of SMS, a feature not currently replicated by WhatsApp or email, ensures a smooth and efficient process for completing transactions, especially critical in maintaining the integrity of payment pages and preventing potential revenue losses.

6. Maturity and Stability

Having matured over three decades, SMS technology offers stability and speed unmatched by newer technologies. Its established infrastructure and widespread acceptance among telecom providers and businesses alike make it a dependable choice for transactional communications.

7. User Expectations

While SMS abuse by businesses have spread a hatred among users, with inbox being the most annoying application in their phone, SMS inbox has an involuntary recall whenever users try to validate a critical transaction. Not receiving an SMS at the right time may infact cause users to become suspicious about their transaction.

8. Regulatory Requirements

Regulatory authorities like the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) have also mandated regulated entities like banks, lending companies, stock exchange brokers and other market participants to mandatorily send SMS for every important update in the User's account. These requirements are direct promises to telecom companies assuring their SMS businesses for survival.

Fun-fact: While UPI is free for all users in India, for every UPI transaction, banks have a mandate to send a transaction alert to payer and receiver. Each SMS will cost the bank 8-12 paise. Two such SMSs (one to payer and another to receiver) costs 16-24 paise. So while UPI is free for users, banks have to incur ~ 20 paise per transaction only to send SMS. Now if users to petty UPI transactions of INR 10, banks are spending 2% of the transaction value only on SMS.

The Rising Significance of WhatsApp

While WhatsApp has emerged as a powerful platform for transactional communications, offering rich content delivery and end-to-end encryption, its reliance on internet connectivity and the need for a smartphone app limit its universality.

Regulatory and security considerations further constrain its ability to fully replace SMS as the primary channel for critical communications. However, WhatsApp serves as an excellent supplementary channel, enhancing customer engagement with richer media capabilities while SMS continues to provide the backbone for secure, reliable, and inclusive transactional communications.

Can RCS be a viable substitute for SMS?

Rich Communication Services (RCS) is heralded as the next evolution of SMS, offering a richer, more interactive messaging experience that includes features like read receipts, typing indicators, high-resolution media sharing, and interactive buttons. RCS is a google technology. Despite its advanced capabilities designed to bring traditional text messaging into the era of modern messaging apps, RCS faces several challenges in displacing SMS.

Firstly, the adoption of RCS requires both sender and recipient devices to support the protocol, limiting its reach compared to the nearly universal compatibility of SMS. Additionally, RCS's reliance on data connectivity means it cannot provide the same level of accessibility in regions with limited or unreliable internet service, a domain where SMS still reigns supreme. Moreover, the rollout of RCS has been uneven across carriers and regions, leading to fragmentation and inconsistency in user experience. Finally, RCS must navigate complex regulatory environments and earn the trust of users and businesses alike in terms of privacy and security, areas where SMS has established a long-standing track record. These challenges highlight the hurdles RCS must overcome to become a true successor to SMS in the realm of transactional communications.

Conclusion

In conclusion, the intrinsic characteristics of SMS - its accessibility, simplicity, reliability, and regulatory compliance, cement its status as the cornerstone of transactional communications in India and other emerging economies. While platforms like WhatsApp and RCS offer valuable complementary capabilities, the foundational role of SMS in the digital communications landscape is unassailable. As technology evolves, the synergy between SMS and internet-based messaging services will be pivotal in shaping the future of transactional communications, ensuring inclusivity, security, and efficiency in the digital age.