The fact that PayPal Inc. has more than 100 million registered users worldwide was not enough to persuade Cingular Wireless LLC to cooperate with the eBay Inc. unit when it introduced its mobile phone payments service in April.
However, the Atlanta phone carrier has agreed to work with Obopay Inc., a year-old Redwood City, Calif., person-to-person payment company that is still testing its service.
The reason? Obopay offered the carrier a piece of the pie.
"We have a mobile operator-friendly business model," said Howard Gefen, executive vice president for marketing and business development at Obopay. "We share revenue with the operator."
Obopay will pay Cingular a per-transaction fee, so "the more people that use Obopay, the more money" they make, he said.
Both mobile payment services can work with any phone and any carrier. However, the carriers can make a service easy or hard to use on their phones, so they have some heavy leverage. Vendors have long complained about the difficulty of negotiating with them for any service that would require changes to software or extra charges on consumers' phone bills.
Analysts said the decision to work with Obopay indicates that Cingular sees payments not only as a useful service to offer customers, but also as an important potential source of revenue.
Kevin Dulsky, the senior director and general manager of mobile for PayPal, said its value proposition for carriers centers around the potential increase in text messages. PayPal Mobile payments are initiated by text messages, and carriers charge their customers for sending the messages.
Every carrier in the United States, Canada, and the United Kingdom supports PayPal's Text to Buy service, except Cingular, he said.
In PayPal's system, products and services are assigned short numeric codes, and customers send a text message to the number to make a purchase. The goods are shipped to the customer's address registered with PayPal, and the charges are deducted from their PayPal account.
Cingular won't transmit messages to those numbers, but customers can make purchases by calling PayPal.
Both the text and voice versions of the service are free for customers, and PayPal charges merchants for each transaction.
Mr. Dulsky said that PayPal is negotiating with Cingular to support Text to Buy, and that the carrier is missing out on revenue by not supporting the service.
"At the heart of any negotiation, it comes down to things like money and control," he said. The carriers "are looking at it as a strategic partnership or a strategic relationship, and Cingular is not any different in that regard."
Obopay currently offers person-to-person payments that are authorized with a mobile phone and debited from a prepaid account. It charges users 10 cents to send or request money.
Anyone can initiate payments with text messages, but Cingular customers can download custom software that links the process to their phones' address books, to makes the service much easier to use. Mr. Gefen said that his company will let people start initiating transactions through phones' mobile Web browsers within 30 days, though the service would not be linked to the phones' address books.
Only Cingular customers can download the software, though Mr. Gefen said he expects to announce a deal with a second carrier within 60 days.
He would not say how much revenue it shares with Cingular, nor whether its deal with Cingular permits the carrier to support any other company's mobile payment system.
In March, Obopay announced it had received $10 million of funding from several venture capital companies, including Redpoint Ventures, Onset Ventures, and Richmond Management. In addition to the mobile service, it offers a MasterCard-branded prepaid debit card, issued by First Premier Bank of Sioux Falls, S.D.
Obopay's management team includes executive that have worked previously at Visa International, First Data Corp., Norwest Bank, and Microsoft Corp.
Mark Siegel, a Cingular spokesman, would not say whether revenue-sharing was a factor in the company's decision to support Obopay instead of PayPal. However, he did say that Cingular is keen on using phones to make payments, and he noted that it is testing such a system now at Atlanta's Philips Arena.
Cingular, JPMorgan Chase & Co., and Visa U.S.A. began testing a payment system for the arena in January. Basketball and hockey fans were given phones with contactless payment card chips that can be used to charge purchases to Chase Visa cards at the arena's concession stands.
When the deal was announced in December, JPMorgan Chase said that an important consideration was making the system profitable for Cingular, because carriers are unlikely to support payment systems that do not offer them a return. In this test, the phones can also be used to purchase ringtones, games, and videos from Cingular.
But so far Cingular has barely tested the waters for person-to-business phone payment services outside its network, such as Text to Buy.
"We are in the very, very early stages of thinking of that particular space and whether or not it can bear fruit on a bigger scale," Mr. Siegel said. "The jury is still out."
Aaron McPherson, a research manager for payments at Financial Insights Inc., a Framingham, Mass., unit of International Data Group Inc., said, "It's very difficult to get the carriers to cooperate because the carriers want to maintain control over payment systems on their devices as much as they can."
PayPal has 105 million accounts for its online payment service, and 29.2 million were used to conduct transactions in the first quarter, but Mr. McPherson said far fewer people use its mobile payment service. (Mr. Dulsky would not provide specific volume figures.)
To get more leverage in negotiations with carriers, a payment service provider needs enough people using its system to prove that the carrier would benefit from supporting the service, he said. However, "it's too early in the game" for even PayPal to claim that. "They don't have enough people using it."
Such a service would need at least a million regular users to be in this position, he said.
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said that there is a "classic tension between financial service providers and carriers."
Clearly, it is in PayPal's best interests to persuade Cingular to support Text to Buy. Without the carrier's sanction, its customers cannot use PayPal's more convenient payment method.
And Cingular's reluctance to participate in the PayPal system is especially telling, Mr. Schatt said. "Either Cingular is planning something itself, which could be likely, or they're holding out" for more money.
