After announcing direct relationships with AT&T, Zong, Boku are announcing relationships with Verizon through mobile payments operator BillToMobile (MoPay, another competitor in the space also has a partnership with BillToMobile).
So why is this important? Historically, mobile payments companies face the challenge of lofty carrier rates. 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. These transactions costs are passed down to developers using Boku and Zong, which are then passed to the consumer. To avoid these costs, Boku and Zong have been negotiating direct relationships with carriers as a way of possibly avoiding these costs.
While these mobile payments companies have had direct relationships with international carriers for some time, deals with U.S. carriers have taken more time in terms of negotiations. Last fall, Zong and Boku both announced direct relationships with AT&T.
BillToMobile has had a relationship with Verizon since May 2010 and Boku and Zong are both accessing lower fees with Verizon by partnering with BillToMobile. Ron Hirson, Boku’s co-founder, says that in end, the consumer wins with these negotiations. We hear that fees for these mobile payments have been brought down to credit card fee levels. Zong tells us: “Verizon fees are in line with our AT&T fees, and we’re optimistic about increased acceleration of carriers worldwide dropping their fees to enable Zong to address more markets.”
In case you aren’t familiar how services like Zong and Boku work, here’s a quick tutorial. When a user wants to purchase a virtual item, he can 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. This entire transaction is powered by Zong or Boku.
It’s good news for mobile payments startups that U.S. carriers are starting to jump on the badnwagon and lower fees. Boku is reportedly a possible acquisition target for both Google and Apple, and direct carrier relationships reinforce the fact that there is consumer demand for this method of mobile payments.