Investors bet on Mobile Payments

Valerie | 22 Jun 2009, 15:27

As c&binet has discussed previously, the micropayments market has struggled to take off, as the New York Times’ withdrawal of its subscription model last year illustrates. However that could be set to change with the entry of two emerging start-ups hoping to turn mobile devices into virtual wallets.

The New York Times reports that recently launched mobile payments startup BOKU has acquired competitors Paymo and Mobillcash and raised $13 million in Series A funding from Benchmark Capital, with contributions from Khosla Ventures and Index Ventures. 

Mark Britto, Boku’s chief executive explained that whilst many people play online games that use virtual currency and digital goods do not have bank accounts or credit cards - such as those in developing countries - many of those same people do have mobile phones, which opens up a new market for Web publishers through Boku. Boku estimates that so far in 2009 people have bought more than $500 million (£204m) of virtual goods on Facebook alone.

CNet notes that Boku already has an extremely close competitor: Zong, which first launched in the US in 2008, and which offers the same strategy of facilitating micropayments with a mobile phone number.

Earlier this year, Obopay, a start-up that lets people transmit money to one another via text message, raised $35 million from Nokia’s investment arm, the single largest investment in a financial services start-up this year, according to the National Venture Capital Association. MasterCard has also introduced a service called MoneySend that uses some of Obopay’s technology.

According to the New York Times, the flurry of recent investments has been driven by the success of smart devices such as the iPhone and Blackberry, which makes complex interactions much easier and illustrates that consumers are willing to spend on music, games and virtual goods.

However, one large challenge that mobile payments will need to overcome if they are to become a viable micropayment option is the transaction fees charged by mobile carriers. Boku says that fees can range between 10 to 50 percent of the purchase price which could pose a significant obstacle.

Still, venture funding for virtual goods-related companies reached nearly $70 million in the first quarter of this year. And both companies say they’re looking forward to the extension of Facebook’s internal payment system to developers, hoping that they can integrate their products into the platform for even broader reach.

It may take some time for either BOKU or Zong to reach Pay-pal like levels of ubiquity but the battle lines have been drawn – taking the “friction” out of the process and making it much faster and easier to purchase online could be the propelling force that’s needed for this second wave to find success.