Obopay inked its first carrier agreement last week, announcing a deal to provide wireless payment services for mobile virtual network operator Amp’d Mobile Inc. But most operators aren’t exactly embracing such services with open arms.
The startup allows users to set up stand-alone accounts that can be used to send and receive money between users or to make purchases. The company charges 10 cents per transfer of funds between users, paid by the sender; retailers are charged based on the amount of each transaction.
Obopay is backed with $10 million in financing and is targeting teens and young adults, hoping to entice them to send money to each other-at a restaurant, for instance, or a movie theater-instead of handing each other cash. The companies said they plan to work together to market the offering to existing Amp’d Mobile subscribers and on college campuses. The service is scheduled to come online in the coming months.
The announcement follows PayPal’s expansion into wireless earlier this year, and the launch of TextPayMe last December. All three firms are emphasizing person-to-person transactions over “contactless payments” at the retail sales counter that employ short-range technologies to transfer funds.
But all three players on the field face a substantial hurdle in inking deals with major wireless operators. Several carriers have policies forbidding the use of credit cards or other billing methods, requiring third parties to bill through monthly carrier statements.
The issue was underscored last week when an external memo from Cingular Wireless L.L.C. was posted on the Internet. The document, which was sent to third-party messaging and content providers, warned that “Cingular customers should always and only be offered the Direct Bill option for payment of content and/or services. Any programs that offer Paypal and/or credit-card options to Cingular Wireless customers will be escalated and reviewed by Cingular Wireless for possible immediate shut off.”
Cingular declined to discuss both the memo and its policies regarding third-party billing. Interestingly, the carrier partnered with Obopay earlier this year on a beta test of the mobile payment service, but has yet to sign a deal with the California developer.
Carriers have long preferred to use monthly statements to bill for third-party content, arguing that the practice allows them to better monitor their networks and protect their subscribers. More importantly, though, operators that allow outsiders to complete their own transactions risk losing out on a piece of the action, according to Andy Castonguay, a Yankee Group analyst.
Indeed, a small army of third-party content owners have earned substantial sums in the last several years by mandating credit-card payments from customers and cutting carriers out of the deal. But even those transactions generate revenues for operators by incurring airtime and usage charges.
“If you were to go onto the Internet on your phone to access and pay for all these things outside the operator’s bag of tricks, (carriers) certainly are in position to be completely cut out of that transactional element,” Castonguay said. “But, with the data activity, there is revenue coming into the operator incremental for that.”
PayPal claims that its service works with “most, but not all” wireless operators, although no U.S. carrier has announced an agreement with the digital payment company. And TextPayMe, a Redmond, Wash.-based startup, claims its offering is supported by “any phone that can send text messages.”
While Obopay requires users to download an application, both PayPal and TextPayMe use a combination of text messaging and voice calling, making it difficult for operators to monitor subscriber usage. And it’s unclear whether operators have the legal right to block such transactions, or to require some companies to bill through monthly statements while allowing others to complete transactions on their own.
Carol Realini, the company’s chief executive officer, said Obopay is in talks “with every carrier.”
“The cell phone will do for money what the iPod did for music,” Realini has said repeatedly. “Instead of having cash in my wallet, I’m going to have money on my phone.”
Of course, carriers may not be forced to partner with any of the mobile payment service providers. They could opt not to embrace any such offering at all-as some continue to do-or they could invest to deploy branded systems in an effort to “own” their subscribers.
If m-payments begin to gain traction, though, operators will be forced to embrace some kind of offering to meet consumer demands or risk losing subscribers. The question for carriers, Castonguay said, is how to embrace mobile payments and still carve out a piece of the action.
