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Telecom carriers and payment processors are taking important steps to allow consumers to make a mobile payment, that is, use their smart phone to make a purchase at an online or brick-and-mortar retailer.
These steps toward mobile payments are the latest in the rise in self-service that has taken hold among American consumers in the last decade. This year there have been moves that will allow consumers to use their mobile phone number to make online payments. Not quite the same as a brick-and-mortar payment, but it brings the mobile payments concept closer.
The impact on the kiosk industry is unclear. Some believe it could eliminate the need for devices like self-checkout systems at grocers. However, other retailers have begun looking for ways to incorporate mobile payments with kiosks and devices such as the iPad to give consumers greater freedom within their four walls to load their "shopping cart."
In late October, three young competitors in the online mobile payments space announced separate deals with AT&T, gaining access to the giant carrier’s 92.8 million wireless subscribers.
These deals that BilltoMobile, Boku and Zong made with a major carrier may be important in several ways.
They appear to make it easy for unbanked and underbanked consumers without credit or debit cards to make online purchases, at least if they sign on with AT&T. The bill for the purchase will appear on their monthly AT&T statement.
The deals also send a strong message to financial institutions that carriers will move forward on mobile payments without them, a direct threat to the control that banks in the United States have long had over the payment system.
There's another vital aspect to AT&T's agreements. Zong, Boku and BilltoMobile generate revenues through fees they charge merchants for every transaction. Merchants have long looked for a cheaper alternative to the interchange fee they pay to the bank that issues the credit or debit card the consumer uses to make a purchase. The National Retail Federation says the typical interchange fee is 2 percent of the transaction.
Banks justify interchange fees, in part, to the risk they take on as card issuers. The three mobile payments firms do not issue cards, allowing them to charge lower fees.
As that battle rages, the three mobile processors will be competing both for consumer acceptance and for favor among venture capital firms. The other wild card is the possibility that larger firms will swoop in and buy any of the three processors.
Palo Alto, Calif.-based Zong announced it had partnered with AT&T on a pilot program that would allow consumers to use their mobile phone to make online purchases and charge them to their AT&T wireless phone bill. Zong consumers typically use it to make purchases in virtual worlds, along with online gaming, social networking and digital content sites.
In practice, the Zong consumer goes online with her smart phone, visits the site of a retailer that accepts Zong's payment processing services, finds her product and clicks the Zong logo when prompted for payment type. Zong reports that a screen will then prompt the consumer for her mobile number. After it is put in, Zong sends back a secure PIN code to the consumer that she must enter on the merchant's site. If it all checks out, Zong authorizes the purchase.
Zong claims a typical online credit card purchase requires the entry of as many as 80 characters while its system requires the consumer's mobile number and the PIN.
Zong says it has relationships with more than 200 carriers in nearly 50 countries. Its retail partners include Facebook, online game providers Playdom, Aeria and Bigpoint, and social networks hi5 and Gaia Online.
On Oct. 28, Boku announced it had an online payments pilot with AT&T where consumers could make purchases online and charge it to their AT&T mobile phone account.
According to the announcement made in a Boku Blog by David Yoo, SVP strategy, this "next-generation direct integration allows a much more complex and scalable payments infrastructure, one that includes things like pre and post authorization, advanced refunds, higher price points and reduced carrier rates."
Boku's Paymo payment system is similar to that of Zong in its simplicity. A consumer visits a digital merchant and chooses to "buy" more minutes. After the consumer chooses to pay via Boku, he is prompted to input his mobile phone number. Boku says that an e-mail will be sent to the number asking for confirmation of the purchase, and the consumer enters "Y" for yes to complete the purchase.
San Francisco-based Boku had raised $38 million in venture funding since its start in 2009. Investors include Benchmark Capital, Index Ventures, Khosla Ventures, DAG Ventures and Andreessen Horowitz. Boku used some of the funds to buy out two mobile payment firms Mobillcash and Paymo, hence the name of its service.
This April, Zong raised $15 million in a funding round led by Matrix Partners, a venture investor that has helped bankroll such leaders as Apple Computer and Sandisk. Joining the Zong board was Matrix general partner Dana Stadler, whose resume includes stints with Netscape, eBay and PayPal. Other Zong investors include Advent Venture Partners and Newbury Ventures.
Several hungry lions of the hi-tech world are said to be eyeing Boku for takeover. Last week there were reports of a possible buyout battle for Boku by Apple and Google, both of which are looking for a low-priced payment processor, according to the Motley Fool investment service.
The Fool says Apple wants an inexpensive processor as it sells apps for its smart phones. Google supposedly would add Boku's capabilities to its Checkout payment service.
The payment procedure of BilltoMobile is similar to that of Zong and Boku. San Jose, Calif.-based BilltoMobile began in 2006, making it a little older than its competitors, and signed a processing deal with carrier Verizon Wireless last May. BilltoMobile's majority stockholder is South Korean firm Danal Co. Ltd. which claims it processes mobile payments for 10,000 merchants in Korea, Taiwan and China.
(Photo by KO).