While mobile payments startups Boku and Zong have steadily gained traction and significant funding, both companies face the challenge of lofty carrier rates. Historically, wireless carriers have charged roughly 30% to 40% to process transactions made via mobile phone accounts, making it very difficult for mobile payment companies like Boku to scale beyond virtual goods. Boku has long talked about forming direct relationships with carriers as a way of possibly avoiding these costs. Today, Boku is announcing a new direct relationship with Vodafone UK, to use the carrier company’s API.
Boku’s mobile payments system is fairly simple. When a user wants to purchase a virtual item, he enters his cell phone number on a site, the site sends a text message to the phone, the user confirms the transaction with a short reply, and all the charges show up on his phone bill.
The deal with Vodafone allows Boku users to charge their online purchases (this applies beyond just virtual goods) directly to their Vodafone pre and post paid accounts by connecting with Vodafone’s MPAY payments API. Vodafone customers can make either single or subscription purchases of any amount between 5p and £30 GBP. The connection also enables two-step authorization and capture, transaction processing and the ability pass refunds back to the customer’s account.
Boku says these types of direct-billing relationships with carriers are currently being made in Europe and UK, and will soon come to the U.S. Most importantly, says the company, merchants don’t have to incur large transaction fees and Boku doesn’t have to pass on the high fees charged by aggregators. Boku declined to reveal the exact transaction fee with the Vodafone deal.
A deal with Vodafone UK (whose parent group Vodafone is one of the largest carriers in the world) should only help Boku continue to grow. Currently the mobile payments service is available in 60 countries, across 220 different carriers, reaching 2 billion consumers worldwide. In fact, the company is enabling one new transaction every second.
Boku’s co-founder Ron Hirson told us in July that the company planned to move into online payments in the next year and it looks like this is becoming a reality with the Vodafone partnership.
UPDATE: Boku competitor Zong already has an existing relationship with Vodafone UK, and 60% of their payment volume comes from carriers they are directly connected with.