AT&T Inc. has signed partnerships with three mobile-payment companies that let its wireless customers charge digital content such as games and music directly to their mobile phone bills.
Boku Inc., Danal Inc.'s BilltoMobile and Zong Inc. each has developed a system that lets them connect to a wireless carrier's billing system. Consumers can use their mobile phone numbers to initiate a transaction at a merchant's checkout screen.
Steve Klebe, BilltoMobile's vice president of business development and strategy, said this type of system can be a viable alternative payment option because "we're leveraging a relationship the consumer and carrier already have."
Companies that have failed in the alternative payments space required the consumer to download software to a personal computer, attach a peripheral device to a PC or create a username and password to use a particular service, Klebe said. "That has been the bane of almost every other attempt to build a meaningful alternative payment," he said.
In the past, most digital content bought through a mobile phone relied on a method called premium short message service, or SMS. This type of message is used to deliver digital content such as ring tones to a mobile phone. The carriers required the merchant to pay as much as 50% of each purchase as a transaction fee.
BilltoMobile, Boku and Zong have moved away from that model to direct-to-mobile billing, which offers a transaction rate of 10% to 20%, Klebe said. The current rates "are not exactly where they need to be," he said, "but more merchants are willing to accept these kinds of rates."
James Van Dyke, the president of Javelin Strategy and Research, said AT&T and others getting into this business will need to convince merchants that direct-to-mobile billing is a way to bolster sales and look past the associated costs.
"The majority of purchases will not be made by this method," he said, "but it will create revenue when it might not have otherwise existed" by providing another alternative to methods such as credit and debit cards.
About 55% of consumers are using alternative payment tools such as PayPal Inc. and Bill Me Later Inc., but only 35% of merchants offer such an option, according to a recent study by Javelin. It surveyed online 60 merchants and 3,294 consumers in November, July and August.
AT&T is positioning the deals as a trial. Ron Hirson, Boku's senior vice president, called its pact "an extended agreement." AT&T execs were unavailable to comment.
BilltoMobile recently went live with Verizon Communications Inc. Klebe could not share specific transaction data but said volume has been modest. "Consumers are using it over and over again," he said, "and that's a good sign."
Boku last week announced a partnership with Vodafone Group PLC. Boku, BilltoMobile and Zong have carrier and merchant relationships in several countries.