A payment start-up is hoping to entice the unbanked to shop online by dusting off an idea that has been tried several times in the past with varying degrees of success: charging purchases to a phone bill.
Etelcharge.com Inc.'s service, which went live last week, is aimed at people who do not have credit cards or do not want to use them online. The DeSoto, Tex., company said it could encourage more people to shop on the Internet.
"This is empowerment to people who have been shut out of purchasing online," Rob Howe, Etelcharge's chairman and chief executive, said in an interview Monday.
Payment experts said that phone companies and consumers have become accustomed to charging purchases for things like ringtones to phone bills in the past few years, but they warned that Etelcharge is aiming at a small pool of potential users, many of whom may have other options.
The service is available to AT&T Inc. landline customers in Texas, Oklahoma, Arkansas, Kansas, and Missouri, though the company has not yet announced any deals with merchants to accept the service as a payment option. Mr. Howe said that such an announcement is expected this month.
The Etelcharge service is offered through a billing aggregation service that AT&T has offered for years. An AT&T spokeswoman confirmed that Etelcharge is using its service, but she would not discuss the matter further.
Mr. Howe expects to expand into other states in the next six months, though he said such growth would depend, in part, on AT&T's response to his service.
Users enroll by calling Etelcharge from the phone they want to use for billing to demonstrate that they have control of the line and the associated bill. There is currently a spending limit of $60 a month.
Mr. Howe not would say how much his company charges merchants, except to say the fees are comparable to those for accepting credit cards.
Etelcharge is assuming the risk for purchases; if a consumer does not cover the cost of an online purchase billed by Etelcharge, the payments vendor is liable for the transaction.
The service was designed to bring new shoppers online, not to provide an alternative to people who are using credit cards online, he said. "If they have a credit card that they're planning to use and planning to pay anyway, then they're not part of our demographic. Why would they use our service?"
Other companies are also offering services that let consumers make purchases through phones. In April of last year PayPal Inc. introduced a mobile service that lets people pay by text message; however, since the eBay Inc. unit's accounts require a credit or debit card, the unbanked cannot use the service.
Mr. Howe said that he is considering offering his service through mobile phones and voice over Internet protocol services, but his first priority is expanding the service nationwide under AT&T.
PaymentOne Corp. offers a similar service that lets people charge purchases to their landline, broadband, and mobile bills, and it has been pushing the idea of using phone or Internet bills since it was founded in 2000. Brad Singer, an executive vice president at the San Jose company, said it initially expected its service to be popular with the unbanked. Now about half its purchases come from the unbanked, but the other half come from security-conscious customers who do not want to put their credit card information online, he said.
Many people are willing to make large purchases on a card at a store, Mr. Singer said, but "in their online lives, they have a totally different mode."
So far 100 merchants have agreed to accept PaymentOne, and in the past 24 months consumers have used the service for $3 billion of purchases billed through more than 1,000 telecommunications companies. Typical transactions range from under $5 to $75, he said. "This is not designed for thousands of dollars on a monthly basis." When a customer wants to make a purchase for more than $75, "we look at that a little differently," because such a purchase could be fraudulent, he said.
Unlike Etelcharge, PaymentOne requires its merchant users to assume the risk for transactions.
Analysts said that Etelcharge is pitching its service to a shrinking market that already has plenty of options.
Red Gillen, a senior banking analyst for the Boston market research firm Celent LLC, said that there are comparable services in Japan and Korea, but "the limits are really small because the phone companies don't want to extend a lot of credit."
Also, 12.8% of the U.S. population does not have a landline phone, Mr. Gillen said, and immigrants, many of whom are unbanked, are "far more likely to say they'll have a mobile phone before they have a landline."
Etelcharge's biggest challenge is the number of payment alternatives already available, even to the unbanked, he said. "There are a lot of prepaid cards out there that would do the trick just as well … and it doesn't matter if you have a landline."
Merchants also have many options, he said. "Signing up one merchant at a time is tough, especially if you don't have the clout of a Visa, Amex, MasterCard, Discover, or, for that matter, PayPal's user base."
Penny Gillespie, the president of the Centreville, Va., advisory firm Gillespie International Inc., called Etelcharge "another good way to try to penetrate the payment space for someone who doesn't have a bank account," but she did not think the market for such a service is growing.
Though she did not know exactly how many unbanked people have a landline phone, "my suspicion would be that those numbers are decreasing," she said.
