Two online payment companies recently took steps to allow consumers to pay for goods using their cell phone numbers, but the charges don’t appear on consumers’ cell phone bills. Instead, Zong and Obopay are allowing users to pay with a credit or debit card and link to that payment card by entering their mobile number.
It’s all about offering consumers the ability to conduct faster, more efficient transactions while online, such as during game play, the companies say. “We’re trying to make the online purchasing experience better, faster, more secure,” says David Marcus, founder and CEO of Zong.
The new Zong+ solution is in addition to allowing users to make online purchases with their cell phone bill. But that process involves high transaction fees; the new release allows for larger purchase amounts and opens up new market segments for Zong. Wireless carriers need not worry they will lose out in the process; Zong says carriers will see a “significant increase” in transaction volume.
Vikrant Gandhi, analyst at Frost & Sullivan, agrees that higher volumes should be enough to please carriers. “Premium SMS is not going to go away, operator billing is not going away,” he says. What the latest payment options bring is more flexibility for consumers and merchants, he says.
Obopay has stayed clear of the bill-to-carrier model largely because of the downsides that include the amount of revenue carriers take off the top and the settlement period that can take up to 45 days, delaying the time it takes for merchants to get paid, according to David Schwartz, head of product and corporate marketing at Obopay. Plus, carriers may restrict the amount of outside charges that can go on a bill.
Others are equally or more critical of the bill-to-carrier model. Conrad Sheehan, founder and CEO of mPayy, says the bill-to-carrier model is inherently a niche payment system. “It’s not even that. It’s more of a charging system,” says Sheehan, who founded mPayy in 2007 after working at JPMorganChase and heading its Consumer Payments business.
Before launching mPayy, Sheehan and colleagues took a close look at what happened with Europe’s SimPay, which had the backing of large operators like Vodafone and Orange. SimPay was an attempt to deliver an open, interoperable and commonly branded solution for payments via mobile phones. But it never got off the ground – and it was done in a very mobile-centric culture at the time. It closed in 2005.
Sheehan acknowledges a bill-to-carrier system works great for ringtones, wallpaper and social network goods that involve nominal amounts. But he questions whether it can break out of its existing niche. Architecting a solution isn’t that hard, but negotiating with carriers is quite another. “There are a lot of competitors. Ultimately, you’re at the mercy of AT&T and Verizon and to a lesser extent, Sprint. They could take 60 percent on revenue and you’re going to pound sand.”
Of course, carriers have a vested interest in keeping the system healthy; they make great money on it. But Sheehan questions whether they want $80 in non-telephony charges sitting on a phone bill waiting for collection each month.
Nonetheless, Sheehan says mPayy peacefully co-exists with the bill-to-carrier model. Its strategy works similar to a debit card; customers share their checking account number, and they use their mobile phone to pay for goods rather than typing in a debit card number to random sites. It’s similar to a PayPal model, except that mPayy uses a mobile number and password rather than e-mail and password.
A report released earlier this month by Inside Network and the Virtual Goods Summit estimates the total 2009 U.S. virtual goods opportunity at just over $1 billion. But apart from iTunes and Amazon, the online payments space has not evolved much in the past 10 or 15 years, says Zong’s Marcus. “It’s time for that to change because merchants … leave a lot of buyers behind because of the super high drop-off rates.”
Obopay, which historically focused on peer-to-peer mobile transactions for people to share money with one another, is branching out with its latest offering. Many customers may be in an online social network when they’re not using their mobile phones, or they may be doing both at the same time, Schwarz notes. Obopay says because users can "stay, pay and play," its solution offers improved economics and increased conversion rates for merchants as customers will stay longer in the game.
Obopay’s mobile payment platform is being used in the Nokia Money solution, which was announced in August and is designed to let consumers send money to one another as well as pay for goods and services. Nokia hasn’t yet announced the countries in which it will offer that service.