San Francisco-based Boku has raised a sizable round of funding totaling $25 million to build a mobile-payments company that they believe can one day compete against financial institutions, like Mastercard, Visa, and even online providers, like Paypal.
The year-old company has partnered with wireless carriers around the world to let people use their cellphones to pay for online virtual goods from social networks, like Facebook and MySpace. Once a user enters their cellphone number, and verifies the charge via text message, the amount appears on a user’s next bill. Even just a week ago, the idea may have sounded less probable, but since then the Red Cross has collected $22 million for its Haiti relief efforts via text messaging, signaling that consumers are ready to start spending by mobile phone.
Investors in the third round include: DAG Ventures, Benchmark Capital, Index Ventures and Khosla Ventures. In total, the company has raised $38 million. In an interview with mocoNews, Ron Hirson, BOKU’s SVP of product and marketing said the money will go towards global expansion: “Right now with 196 carriers, we reach 1.8 billion potential subscribers, but there are 4 billion people worldwide that have cellphones.” Hirson added that more subscribers make them more appealing to more merchants. In doing that, a lot of money will be spent on adding redundancies and technology to their system similar to a bank’s. “We aren’t spending it on marketing or headcount. We are around 50 people, we won’t double by the end of the year,” he said.
The company was born from acquisition. Last year, it raised $13 million to buy both Paymo and MobillCash. Hirson said they have no plans to acquire more companies, however, “if it makes sense to grow, we will consider it, but so far, we are in a pretty strong position with Paymo and MobileCash.” As part of the financing, the company said it will adopt Paymo as its consumer-facing name, but its corporate name will remain Boku. Some of the smaller startups that Boku competes against are Obopay and Zong, among others.
But the promise of hitting it big, is not so much a race against others. One of the major sticking points for the mobile-payments space in general is the carriers. Right now, merchants must pay carriers a fee in order to use the phone as a payment method. Hirson said the fee can range between 20 and 50 percent of the retail price. After that, Boku also takes a cut (which Hrison says is in the single digits). When a consumer is considering buying virtual goods in an online game, like tokens or new weapons, the fee is not a deal-breaker considering the convenience of paying with a cellphone. But when you consider other spaces, like digital goods (MP3s, videos) or physical goods (for instance, anything on Amazon.com), taking a 50 percent cut makes the business model impossible.
Hrison said it’s their intention to move into more markets, and he sees carriers eventually lowering their rates. “The carriers are definitely coming down, but unevenly globally. Right now, some countries are 10 percent, but others are still getting there. If this proves to be a viable channel, carriers will see it as a way to make more money and will open up to more markets if they lower their fees.”
Based on fees and the general comfort-level of subscribers to buy using the phone, the opportunity is greater outside the U.S. Currently, Boku’s revenues are basically split with a third coming from the U.S., a third from Europe and a third in Asia. “Depending on who you talk to, some of us are surprised as a much is coming from the U.S. It’s interesting to see where it’s coming from.”
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