On a PC, having to fill out a form and type in a credit card number to buy something is only mildly annoying. On a cellphone, it could make you want to skip the purchase entirely.
This is why investors, start-ups and major corporations are pouring money into services that make it easier to use cellphones to buy goods and transfer money.
The aim is to turn phones into virtual credit cards or checkbooks, enabling the kind of click-and-buy commerce and online banking that people have come to expect on their PCs. But shrinking down those services to fit onto cellphones presents serious challenges.
The services must work on many different phones and through many cellphone service providers, which usually control the billing relationships with customers. That adds complexity to the already tricky business of safely and securely transferring funds among financial institutions and merchants.
Mobile payment systems have been tried before, with only modest success. Driving a new flurry of deal making, industry analysts and executives say, is the success of the iPhone, BlackBerry and other sophisticated devices. These phones make complex interactions easier, and they have shown that people on the go are willing to spend on music, games and virtual goods, like a $2 costume for a character in a video game.
Now the race is on to develop new payment systems — and to get several percentage points in fees from each transaction.
“A lot of big players with big bucks are investing a lot of money in this,” said J. Gerry Purdy, an industry analyst for Frost & Sullivan, a market research firm. “They’re seeing that returns could be so huge.”
“We know it’s going to be there,” he said of the technology. “The question is how to make it easy for people.”
Obopay, a start-up that lets people transmit money to one another via text message, raised $35 million from Nokia’s investment arm in March. That was the single largest investment in a financial services start-up this year, according to the National Venture Capital Association. Last week, MasterCard introduced a service called MoneySend that uses some of Obopay’s technology.
Also last week, a mobile payments start-up called Boku announced that it had received $13 million in venture capital financing. Boku, which is the product of a merger of the start-ups Paymo and Mobillcash, says it views itself as the mobile phone’s answer to MasterCard or Visa . But instead of relying on credit card numbers, Boku asks users to type in their phone numbers.
The system then sends a text message to buyers asking them to authorize the transaction with a texted response, and the charge appears on their mobile phone bill. Carriers can take up to 50 percent of the purchase price, while Boku takes 5 percent to 10 percent.
“Everyone knows their cellphone number. Not everyone knows their credit card number,” said Mark Britto, Boku’s chief executive.
When people can use their phone numbers to make a purchase, they are 10 times as likely to follow through on a transaction as when they have to type in credit card and billing information, said David Marcus, chief executive of a start-up called Zong. Much like Boku, Zong lets people use phone numbers to buy games, virtual goods and virtual currency.
“If you want to buy a virtual penguin for two bucks, you’re not going to go to your wallet, take your credit card out and type in 16 numbers,” Mr. Marcus said. “These transactions are impulse purchases.”
Why focus on virtual penguins instead of real-world goods like books or clothes? Because the hefty transaction fees charged by wireless carriers in the United States would make those offerings uncompetitive or unprofitable, while virtual goods cost almost nothing to produce. Boku and Zong plan to handle sales of real products if fees come down after carriers see that people do want to use their phones to make purchases.
Mobile payment companies also need to get cooperation from merchants, which must add a payment option to their mobile sites or applications — in much the same way that many online stores allow PayPal payments. Boku says its strategy is to try to establish direct relationships with major retailers, and to allow smaller merchants to add Boku services with relative ease.
Another group of mobile payment companies let people use their phones to send money to one another via text message. Using these fledgling services, a person can send money to, for instance, a baby sitter, family member or a neighbor selling a couch on Craigslist. The services then transfer the money between the two accounts — bank, debit or credit card.
Obopay, one of the biggest companies in this business, has raised a total of $104 million from investors including Nokia; the investment firm of James D. Wolfensohn, a former president of the World Bank; and Citigroup , which uses Obopay to run its mobile payment service. PayPal, which is owned by eBay , is promoting its own mobile tools.
So far, mobile money-transfer services have had more success in developing countries, where fewer people have traditional bank accounts, and among people in developed countries who want to send money to relatives abroad.
In the United States, skeptics say, people will continue to use checks, credit cards and cash rather than adopting yet another system for their mobile devices.
But the potential opportunity to get fees from the growing number of mobile transactions is too juicy to pass up, despite the risks, said Aaron McPherson, an analyst with IDC Financial Insights, a market research company.
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“If you’re a venture capitalist who likes to take big bets, it’s a good thing to get into, but a lot of these guys are going to lose their shirts,” Mr. McPherson said.
David Weiden, an investor at Khosla Ventures, which invested in Boku, conceded that many past ventures in this area have failed. But, he said, “it is also true that micropayments and this premium model for goods and services, mostly digital games and ring tones, has been an absolutely smashing success on mobile and way underhyped.”