Paypal Was So 1990s: Obopay, boku and Zong

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Ben’s great post below on PayPal was really quite timely, because Paypal is to the internet what Obopay, boku and Zong may shortly be to mobile phones.

Obopay, a start-up that lets people transmit money to one another via text message, raised $35 million from Nokia in March. This was the single largest investment in a financial services start-up this year according to the National Venture Capital Association. According to a senior Nokia executive, the investment came from the Finnish cell phone maker’s corporate funds rather than its venture arm because Nokia wants a very close collaboration with Obopay. Obopay had previously raised $69 million in previous rounds. Last week, another mobile payments start-up, boku, announced that it had received $13 million in venture capital financing.

A September 2008 report by Mercatus, an investing and consulting firm, found that while only 1.5% of Americans have used their mobile phones to make payments, half are aware that it is possible and that within a decade, 50% of adults under 35 will be using their mobile phones for payments.  Another study, conducted by Berg Insight, projects that the market for mobile payment services will jump 89% every year until at least 2014.   So a discussion on mobile payment startups clearly requires some FinovateIsrael! attention.

Obopay’s service, available in the U.S. and India, lets people download its mobile application and pay each other via SMS.  The funds can come out of bank accounts or credit cards, and those lacking bank accounts can prepay funds into an Obopay account. If the friend who you’re sending your fantasy football fees to doesn’t yet have an Obopay account, they get a text message on their mobile phone letting them know they have received a payment from you.  Obopay holds this money as a “pending payment” until they sign-up with Obopay and claim their money.

Registration is free, there is no fee for receiving money, and sending money is a mere $0.25.  Adding money to an Obopay account is free if it’s from a linked bank account and 1.5% of the balance you are transferring from a debit or credit card.  Your mobile operator charges its own standard fees for SMS and data transfer.

You can withdraw money sent to you from any ATM by accessing your linked bank-account or by using an Obopay Prepaid MasterCard.

Obopay faces a tough field of competitors, including PayPal Mobile (backed by eBay), Amazon’s TextPayMe and Mpayy.  However this seems to be a good play for Nokia. Rumors are that they are developing transponders for its phones that will let mobile owners make payments by waving handsets in front of scanners (the same technology as the Exon Mobile Speedpass or the London Tube’s Oyster Card) and Obopay will give it an instant user base.

boku and Zong operate on a fringe of this market letting people use phone numbers to buy mobile apps, games, virtual goods and virtual currency.  The system sends a text to buyers asking them to authorize the transaction, and the charge is billed via their mobile phone carrier and appears on their mobile phone bill. However since carriers take a sizeable percentage of the purchase price, and boku takes an additional 5%-10%, these transfers usually involve very small balances.

You might be saying to yourself why don’t people just open up Paypal on their phone browsers or whip out a credit card?

Well, I think for starters mobile phones aren’t even really “phones” anymore.  A “phone” is something that sits on the coffee table in my living room that I happen to use when I’m watching Mad Men on TV and am too enraptured (more like too lazy) to get up and find my “mobile.”  Today’s mobile devices feel more like mini-computers that just happen to have a phone number associated with them and a built-in microphone and speaker.  So if we’re going to start using mobile phones for e-commerce, doesn’t it make sense that we automate the process as much as possible?  If we did it for PCs with PayPal why shouldn’t we do it for mobile phones?

Not satisfied with the above answer?  Here’s a second point:  In the industrialized world we take for granted that if you have a mobile phone you also have a bank account and credit card.  However, in the developing world you are more likely to have a mobile phone number than either.  Obopay’s chief executive, Carol Realini, founded the company after traveling to Africa where she noticed how ubiquitous cell phones had become, while financial systems were still rudimentary and undeveloped.  With 4 billion mobile phones in the world and only 1 billion bank accounts, she realized there was quite a gap to bridge.

For a great article on mobile usage in the developing world and to learn what a day in the life of Nokia anthropologist Jan Chipchase is like, be sure to check out Sara Corbett’s article Can the Cellphone Help End Global Poverty? where she writes:

“Having a call-back number, Chipchase likes to say, is having a fixed identity point, which, inside of populations that are constantly on the move — displaced by war, floods, drought or faltering economies — can be immensely valuable both as a means of keeping in touch with home communities and as a business tool. Over several years, his research team has spoken to rickshaw drivers, prostitutes, shopkeepers, day laborers and farmers, and all of them say more or less the same thing: their income gets a big boost when they have access to a cellphone.”

And the developing world has already taken the concept of mobile payments to the next level: mobile banking.

Companies like Wizzit, in South Africa, and GCash, in the Philippines, have started programs that allow customers to use their phones to store cash credits transferred from another phone or purchased through a post office, phone-kiosk operator or other licensed operator. With their phones, they can then make purchases and payments or withdraw cash as needed.  In February 2007, Vodafone rolled out its M-Pesa mobile-banking program in Kenya and is now set to open mobile banking enterprises in a number of other countries, including Tanzania and India.

The impact this will have on micro-credit and remittance payments in the developing world will be tremendous.  You don’t need a bank account anymore.  You just have to be one of the 80% of people in the world living in an area covered by a wireless network.  If anything will completely democratize the flow of global capital, it’s quite possible that mobile banking will be it.

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