Two mobile payments companies have linked phone numbers to cards, moves that could enable issuers to lengthen their reach in the social media and online gaming markets.
Obopay Inc. and Zong, which already offer payments services linked to phones, said that extending these capabilities could encourage consumers to use cards to purchase low-cost digital content, an area where eBay Inc.'s PayPal Inc. unit is well established.
David Schwartz, Obopay's head of product and corporate marketing, said in an interview last week that banks are eager to gain a foothold in some of the busiest parts of the Internet. Issuers are "looking at how they can target that market and get involved in the social networking space, so transactions remain in the banking system," he said.
Obopay, of Redwood City, Calif., has made its mark with a mobile phone person-to-person transfer service.
The company announced last week that users can charge purchases to enrolled credit and debit cards by entering their phone numbers and a PIN at participating gaming and social networking sites.
The move also gives Obopay an entree into a larger market beyond the split-the-dinner-check crowd. Though there are other uses for its online payments service, gaming and social media is "a segment where we see a lot of potential," Schwartz said. "It's very synergistic with the market that we're in," the "mobile youth" group —students and young professionals 18 to 35, who use their phones heavily.
Spending on games and social media is growing rapidly. According to DFC Intelligence, a San Diego firm that focuses on the interactive entertainment markets, the worldwide market for online games will double in size by 2014, to $17 billion, presenting a significant opportunity for issuers.
"This type of purchasing of games digitally has been huge in places like Korea but is just starting to take off in a big way in the U.S. and Europe," David Cole, DFC's principal, said in an e-mail message. "It is a rapidly growing market attracting many entrants, and actually the growth is just starting."
In South Korea, for example, where the online game market is more developed, about 30% of game transactions are conducted with prepaid point cards, 25% are billed to phone accounts, 5% use credit cards and the remaining 40% are split among numerous other options, including gift certificates and subscriptions, he said.
"There are thousands of content creators. There's a clear issue on monetization," he said. "You need to have a lot of different ways to get people to bite on that impulse purchase."
Zong, a Palo Alto, Calif., unit of the Swiss mobile payments company Echovox Group, already offers a service that bills users' phone accounts for purchases of digital goods. Its Zong+ service, announced Thursday, lets people use their phone number to charge online purchases to credit, debit or prepaid cards, potentially expanding its service beyond online games and networks.
Hill Ferguson, Zong's vice president of product management and marketing, said the service addresses three pain points for online merchants using its phone bill service: high transaction fees, because carriers may retain 40% or more of the charges for virtual goods; limited price points, because consumers are often reluctant to add charges of more than a few dollars to their phone bills; and slow settlement cycles, since merchants sometimes do not get paid until consumers pay their phone bills.
Zong has more than 1,000 merchant customers worldwide, including 200 in the United States, mostly operators of virtual worlds, online games and premium-content subscription services.
Many consumers do not care whether transactions are charged to a card account or a phone account, but they may welcome the convenience of using a phone number, which can be freely shared, rather than a transaction account, which is subject to breaches, Ferguson said. "As a consumer, you may not want to share your payment information with thousands of different endpoints."
Zong expects card payments to make its service more appealing to providers of music and other digital content, and potentially even offline transactions, he said.
When a Zong user enters a cellular number in the checkout process, the service transmits a text message with a one-time passcode to complete the transaction.
Elizabeth Robertson, the director of payments research at Javelin Strategy and Research, said online merchants are looking for alternatives to carrier charges, which can be significant. "It's interesting in this case that the card is the lower-cost alternative," she said.
As more consumers use social media, they form a growing market for a variety of digital transactions, from downloads of songs and videos to physical goods, even charitable giving, Robertson said. "There is an expanding opportunity there. Facebook used to be for a younger audience or the early adopters. Now it's much more mainstream."