Founded in 2008 by Rodger Desai and Mike Brody, Payfoneâ€™s core business is to facilitate online purchases with the use of cellphones. The company relies on the usage of the SS7 inter-carrier roaming network to create mobile identities that make mobile payments more seamless. Like Boku and Zong, Payfone offers a payment solution based on the bill-to-mobile model. However, in addition, the New York based company offers additional services to their clientele of banks, credit card issuers and MNOs through a white-label model.
The companyâ€™s current product line up consists of Direct Carrier Billing, 1-Touch Checkout, and Mobile Authentication. The first offering is very similar to BOKU and Zong, and provides payment services to online merchants, allowing customers to pay with their phone numbers and get billed at the end of the month. Rather than using Premium SMS for direct-to-mobile billing, Payfone sends payment information directly over the SS7 network through a loose partnership companies like Roamware.
Payfoneâ€™s second product, 1-Touch checkout, essentially provides merchants with a personalized payment app, similar to Dwolla, allowing consumers to pay from their phones as long as they have a linked credit card or bank account. Payfone’s last product, Mobile Authentication is not a payment service, but helps provide authentication services to other mobile services that may require identification. 1-Touch Checkout and Mobile Authentication service, like Direct Carrier Billing, all leverage the SS7 network to gain a handsetâ€™s identification attributes.
SS7 is the inter-carrier roaming network that allows cell phone subscribers to use outside networks; because SS7 was designed specifically with internetwork communication and billing in mind, it offers a slew of benefits in the mobile payments realm. Premium SMS based payments are inefficient and costly for MNOâ€™s to implement; since PSMS was invented for sending ringtones rather than sending payments, purchases made this way have high transaction failure rates, long settlement periods, and high exposure to charge-backs and fraud. These lead to transaction costs as high as 40% (explained more in-depth in BOKU page).
Payments through Payfone do not have the same problems. Using the SS7 network, the company is able to record more information about each transaction, including the location, device identification number and SIM card. This way, if a mobile number is used to make a purchase from a different phone or location than is usual, Payfone can flag the transaction. This lowers the risk of fraud and charge-backs, bringing down transaction costs for their bill-to-mobile service. Additionally, the added layer of security facilitates a more seamless payment experience:
With Direct Carrier Billing, customers do not need to send and receive SMS confirmation codes for each transaction. Once a customer has authenticated a mobile device with a merchant, future purchases can be completed with a single click.
With 1-Touch Checkout, a consumer registers once to Payfone through their mobile banking app. Now, if they make a purchase at any merchant signed up with â€ś1-Touch Checkoutâ€ť, their billing and shipping information is automatically linked to their mobile phone identity; all they have to do is choose what to buy, click checkout, then confirm. Payment information is then relayed to the merchant, who then processes the credit card information normally.
Though Payfone uses the SS7 network, the company does not own the â€śkeysâ€ť to the network. SS7 is owned by the MNOs and managed by companies like Roamware, which use the protocol to trace cellphone users and ensure that they have a connection to their home network. Payfone simply uses this existing infrastructure to create mobile identities that facilitate payments.
Payfone licenses its payment solutions to merchants, payment companies and mobile networks. Whereas BOKU and Zong companies generate money on a per-transaction basis, Payfone has embraced the white-label pay for service model. It partners with mobile service providers like Verizon or credit card companies like American Express, and does most of its work behind the scenes. The Verizon partnership, for instance, allows Verizon customers to make bill-to-mobile payments in the way mentioned above while also receiving the perks of smart payment routing through the SS7 network and added security. Through the American Express partnership, Payfone will help operate payment transactions through AmExâ€™s â€śServeâ€ť program, allowing users to pay for products with only a mobile phone number.
These differences have allowed Payfone to branch out from serving only digital goods merchants; they have now reached out to a broad array of companies including online merchandisers, restaurants, retailers, hotels, and travel agencies.
To date, Payfone has a total of $36 million invested from private equity. $6 million of this came in their venture capital round in 2010. They raised an additional $11 million and $19 million in August 2010 and April 2011, respectively. Their key strength seems to be their wait-and-see approach, finding out what works, then providing the services as an intermediary rather than appealing directly to the consumer. Recently, they claimed to have over 400,000 merchants on board, but these may include partnerships formed by Verizon and American Express.
#7 in the Series ABCs of Payments. The ABCs of Payments will examine a new company or innovation in mobile payments each week.
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