Paymo Inc. introduced its service four months ago, and it is now running in 39 countries. The San Francisco company said last week that it plans to bring the service to the United States in the next several weeks for customers of AT&T Inc. and Verizon Wireless and expects to have more carriers on board by the end of January.
Paymo's service lets people charge e-commerce transactions to their cell phone bills.
Terry Langlais, Paymo's director of marketing, said her company's payment method is aimed at consumers as young as 13, who lack payment cards.
"Thirteen- to 20-year-olds might not have credit cards, but they do have cell phones," she said. "We're a payment network that allows consumers to charge digital goods … to their cell phone bill."
The idea of charging e-commerce payments to a phone bill is not new, but it has had a rocky history. Carriers have largely been reluctant to let third parties put charges on their customers' phone bills, but this reluctance has faded in recent years, Ms. Langlais said.
"I think in the last two years, things have really changed quite a bit," she said.
Still, she said, her company's prospective merchant base is restricted by the terms set by carriers. The carriers get 30% to 50% of each transaction; Paymo gets 10%; and the merchant gets the rest.
Carriers ask for such a big cut because they risk having to reverse transactions, as when a teenager runs up a bill and the parent calls up asking to undo the charges, Ms. Langlais said. "Large surcharges" are "insurance that doesn't happen all the time," she said.
Though such fees may be steep compared to the interchange rates paid on cards, they are appropriate for digital goods, Ms. Langlais said. Merchants "don't mind taking that hit from the carrier's charge because there is no cost of goods sold," she said; virtual products cost little to nothing to replicate. "You can't buy a Ferrari with your mobile phone."
Other carrier rules and government regulations typically restrict Paymo transactions to $10 or less, and Ms. Langlais said she expects the average transaction to be less than five dollars.
Since her company is hoping to attract consumers without credit and debit cards, its biggest competitor in the United States would be prepaid cards, she said. Against prepaid, Paymo's biggest selling point is its speed in funding a transaction.
"If you have a prepaid card, how do you prepay it? You have to go purchase the prepaid card," she said. In contrast, Paymo requires no enrollment by the consumer, who can make purchases by typing in his or her phone number. The only extra step is responding to a confirmation text message, which is sent to the phone for authentication purposes.
Paymo also said last week that it had hired Jon Prideaux, a former Visa Inc. executive, to be a senior adviser.
Another company, Etelcharge.com Inc., has taken a similar approach to e-commerce with landline phones. The DeSoto, Tex., company started its service last year with AT&T landline customers in five states. It said its fees were comparable to what merchants pay for credit card acceptance, though consumers were limited to $60 a month in spending.
