the market is moving at lightning-fast speed.
In an economy where consumers are watching their budgets more closely than ever, it seems counter-intuitive that people would talk about adding items to wireless phone bills. But that indeed is happening.
The items are usually tied to goods used on the PC – a piece of software that will make for better or more competitive game playing, for example, or items for a virtual pet. And even though the individual items may be $5 or less, taken together, they represent big business for the companies that process the payments. The potential revenue in 2013 from mobile transactions using SMS, mobile Internet and downloadable applications will be about $18 billion, according to ABI Research.
In general, the space can be characterized this way. U.S. carriers are taking their time to evaluate the space and determine whether they want to adopt third-party solutions. Banking and legal implications are part of the evaluation process. Meanwhile, third-party solution providers are not waiting around for carriers to develop their micropayment strategies.
Among them are Boku, PaymentPin.com and Zong. Of those, Boku and Zong are probably the most similar in their structure and current offerings. Boku, the result of a combination of Paymo and Mobillcash, works with aggregators, and Zong has direct relationships with some carriers. They all offer payment services that allow consumers to buy online goods with their phones instead of going through the arduous process of using a credit card.
ZINGS FOR ZONG
It took about two years to build the Zong platform and add connectivity to U.S. carriers. It launched in September of last year. Since then, “it’s been a real roller coaster,” says CEO David Marcus. “We have hockey-stick growth in terms of transactions.”
|van de Griendt: Everybody is trying to keep up with demand.|
It’s a similar story at PaymentPin, a self-funded Montreal startup that claims to be gaining on Boku and Zong in the race to give consumers the ability to pay for online services. On the mobile side, the services that Boku, Zong and PaymentPin provide are all pretty much the same, says Robbert van de Griendt, president of PaymentPin. “Everybody is trying to keep up,” he says. “It’s a very fast growing market.”
What sets PaymentPin apart is the ability to cover landline as well as mobile phones, he says. It has deals with MochiMedia, Lavalife and Tagged.com. Like other systems, its end users enter a PIN number to automatically charge the transaction to their phone bill.
van de Griendt acknowledges that consolidation is likely, but for now, he believes the large volume of virtual goods represents enough business for three, five or even six competitors.
Zong, which is featured in top applications on Facebook and MySpace, among others, says its frictionless payment experience converts shoppers into buyers at rates up to 10 times greater than traditional payment methods, such as credit cards.
EASE OF USE
For Zong, it all has to do with frictionless payments, Marcus says. There is no registration process; users type in their cell phone number, receive a PIN code via SMS and in 10 seconds, they can complete a transaction. The system uses either premium SMS or event-based IP-based billing, whichever is most efficient.
Marcus says IP-based billing is very efficient, with a lot fewer failures and more control over the transaction. Finding out whether a carrier is capable of IP-based billing is another story. But he says within the next two years, “there’s going to be a massive transition to IP-based billing. I think the carriers will play big in the payments space. They need to.”
For now, Zong doesn’t see a lot of competition, with the exception of Boku. “It’s a two-horse race at this stage,” Marcus says. “We don’t see many other players with the reach or carrier connectivity that we have right now.”
The company is focusing not only on extending carrier coverage but also adding merchants. Globally, Zong works with about 100 carriers, and of those, about 80 are directly connected with Zong. In the United States, about 30 percent of the carriers with which it works are directly connected.
MORE SMS TRAFFIC
Aggregators report seeing more traffic as a result of micropayments. In the United Kingdom in August, the No. 1 premium short code for mBlox was not tied to a ringtone or wallpaper but to a micropayment company in France, according to Brian Johnson, mBlox senior vice president of sales and marketing for Americas and Asia Pacific
“The nice part about these things that Boku and Zong does is they are usually single-time small transactions,” Johnson says. “In this economy, those kinds of things are very popular.”
The appeal of SMS as a core foundation or building block for any mobile commerce is tied to the fact that SMS is supported by 100 percent of the mobile phones in the market, irrespective of carrier or type of handset, says Rohit Mehra, director of product marketing in the VeriSign Messaging and Mobile Media unit. If you want to reach the majority of the population, you go with the lowest common denominator.
Using the wireless phone bill to pay for items isn’t new, but “I do see these companies as making better use of those capabilities to offer more innovative services,” says Cameron Franks, director of m-Commerce Americas for Sybase 365, an enabler in the worldwide payment processing sector.
Besides SMS or premium SMS, WAP and billing on behalf of (BOBO) are used to bill for goods. But SMS is not going away. Just like checks didn’t replace cash and debit cards don’t replace cash, consumers will use what suits their individual inclinations, says Jay Emmet, general manager of Open Market. And while mobile payment systems may be more advanced in other countries, it’s worth noting that some of those carriers are serving on the order of 18 million subscribers – not the 60 million or 70 million that the big U.S. carriers serve.