Boku Inc., a San Francisco mobile payments company that allows consumers to make payments that appear as charges on their mobile phone bills, has begun a partnership with Telefonica O2 Germany GmbH, a unit of Telefonica SA of Spain.
Boku's direct-billing service enables Telefonica O2 customers to pay for online purchases ranging from 13 cents to $42 by entering their mobile phone number during the checkout process, Ron Hirson, Boku's senior vice president of product and marketing, said in an interview. The deal was announced March 24.
Consumers pay for the purchase when they pay their next mobile phone bill. If consumers have a pay-as-you-go mobile phone account, Boku immediately deducts the purchase from the prepaid account, Hirson said.
Consumers purchasing higher-priced items still may pay using Boku's service as long as their mobile phone account is linked to a checking account, Hirson said.
Once consumers enter their phone number when prompted at checkout and complete the purchase, Boku sends them a text message verifying the sale, Hirson said. They must enter the letter "Y" in a reply text message to authenticate the transaction, he said. "This second level of authentication assures consumers that Boku's transaction process is secure," Hirson said.
Consumers pay no fees for Boku's service. Participating merchants pay a percentage of the sale to Boku, and Boku pays about 30% of what it earns to the carrier, Hirson said. Boku charges merchants a "low single-digit" rate, but he declined to comment on the actual percentage.
When merchants sell virtual products such as games and ringtones via Boku, they tend to have higher margins compared with when they sell physical goods, said Bart Narter, senior vice president of the banking research team at the Boston consulting firm Celent.
As such, some merchants may not mind paying a higher percentage of the sale if it means consumers will complete the purchase, said Gwenn Bezard, a co-founder and research director at Aite Group LLC in Boston.
Moreover, many consumers may not complete a transaction because they have to fill out too much information when paying with a card, Bezard said. If consumers see Boku as an option, they may continue with the purchase because they only have to give their phone number, he said.
Despite the challenges for merchants, however, the payment option may be useful for the underbanked, Bezard said. Direct carrier billing is a "niche, but it could be a sizeable niche, especially once consumers realize the convenience of it," he said.
AT&T Inc. in October partnered with Boku and two other mobile payment companies to enable its wireless customers to charge online purchases for such digital content as games and music directly to their mobile phone bills. Verizon Wireless in January also announced a partnership with Boku and Danal Inc.'s BilltoMobile to enable its customers to charge digital content purchases to phone bills.