Boku on CNBC

By Alex Slobodkin

October 9, 2014

Few markets in technology are more crowded than mobile payments. That was the case even before Apple made its loud entrance as part of the iPhone 6 launch last month and prior to eBay’s announced plans a week ago to spin off PayPal.

In a lesser-known corner of the industry, called carrier billing, two start-ups are coming together to try to expand. Boku, based in San Francisco, announced Tuesday it’s acquiring Germany’s mopay, and if the combined company has its way, more consumers will start buying things using just their phone number.

Carrier billing hasn’t caught on in the U.S. the way it has in Europe and Asia. For the business to work, the major phone companies have to be on board, because payments are made through their networks. Instead of the purchase of a digital song or online magazine subscription going over the credit card systems, they get tacked onto a consumer’s phone bill.

The phone companies charge merchants every time this happens, and the largest U.S.carriers, AT&T and Verizon, demand such high fees that most businesses can’t make any money. So they don’t use it.

But elsewhere the model has gained traction. Boku and mopay combined have about 185 employees and customers in 80 countries. Boku alone works with more than 250 operators. Paying with a phone number is particularly popular for things like mobile games, virtual goods and digital media, where items cost less than $50 and convenience is at a premium. According to eMarketer, 4.6 billion people worldwide will use a mobile phone this year.

“More people have got phones than have got cards or bank accounts,” said Jon Prideaux, Boku’s chief executive officer, who’s based in London. “We’ve got a massive advantage. If you’ve got a phone, you just need to know your phone number in order to make that payment.”

Boku’s customers include Spotify and Sony. Prideaux said that joining forces with mopay will give them the scale to go after more big-name merchants.

Mopay has been at this for awhile. Founded in 2000, the company has more than 500 clients and processes over 5 million monthly payments. Mopay operates in countries like Vietnam and Indonesia, where traditional networks are less prominent. In May, mopay signed a deal to be the preferred carrier billing partner for China’s Baidu Mobile Game, a channel for distributing games.

Boku was started in 2009, and the business took off quickly as Facebook became a hub for social game makers like Zynga. Fans of games like FarmVille could buy virtual tractors using their phone number, and Zynga was willing to share much of that revenue with the phone company because there was almost no cost associated with selling the product.

The opportunity to create the next giant payments network attracted major venture investors like Benchmark, Khosla Ventures, Andreessen Horowitz and New Enterprise Associates.

Changing the market has proven to be a slog. As social games moved to smartphones, Google and Apple claimed more control over virtual goods.

Meanwhile, for other digital products like songs, royalty payments have to be made, making businesses less willing to give up margin to the phone companies. And with physical products, the costs of carrier billing are prohibitive.

While credit card companies typically charge merchants 1 to 3 percent per swipe, Prideaux said the lowest amount charged by phone carriers is 4 percent and the highest is around 70 percent.

Square has had a much bigger impact on the consumer market by developing technology that allows more merchants to accept credit card payments, and start-ups like Stripe have made accepting online payments easier for Web-based businesses.

Still, Prideaux said momentum is picking up and the operators are moving in the right direction. “Every month when we look at our statistics we see take rates from carriers is coming down,” he said.

Boku last raised money in 2012, and Prideaux said the company is sufficiently financed to go after the growth potential. The acquisition was made in stock, meaning mopay investors are now Boku shareholders.

They’re all excited about the “once in a decade” opportunity to build a new payment system, Prideaux said.

By Alex Slobodkin, October 8, 2014 Few markets in technology are more crowded than mobile payments. That was the case even before Apple made its loud entrance as part of the iPhone 6 launch last month and prior to eBay’s announced plans a…

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