Boku Inc. has added two more telecommunication carriers to its list of carrier-billing partners, Sprint in the U.S. and Deutsche Telekom in Germany. But the company faces an uphill climb expanding its online-merchant base because of the high prices the carriers charge, though their rates have been dropping.
The company announced the additional carriers on May 3.
The San Francisco-based start-up says it now has relationships with some 247 carriers in 66 countries, and some 700 online merchants include Boku’s payment service as a check-out option. Just how often consumers use the service remains a mystery, however, because Boku won’t disclose transaction data.
Boku appears to be serious about venturing deeper into payments. The company also announced May 3 the hiring of Jon Prideaux, former executive vice president at Visa Europe, and Stuart Neal, former managing director of international development at Barclaycard. Prideaux will serve as Boku’s chief business officer, and Neal becomes the company’s senior vice president of business development.
Ron Pearson, Boku president and co-founder, says it’s no coincidence that individuals such as Prideaux and Neal are interested in working with a mobile-payment company.
“Mobile companies are moving into payments in a big way,” he says. “Seeing payments folks come to companies like Boku illustrates the significance of that trend.”
Boku’s partnership with Sprint, which has more than 55 million customers, means it now processes payments for all four major U.S. carriers, including also Verizon, AT&T and T-Mobile. With the addition of its deal with Deutsche Telekom means Boku also will be processing transactions for every major carrier in France, Germany, the United Kingdom and the U.S., according to a company spokesperson.
All of Boku’s merchant customers are online and sell high-margin products, such as songs and other virtual content. Carriers initially were charging interchange rates as high as 50% on those sales, but most have dropped their pricing to rates “in the teens,” Pearson says.
Still, the rates are relatively high when compared with traditional card interchange, notes Todd Ablowitz, president of Double Diamond Consulting. Most card rates fall between 1% and 3%.
“It’s a trade off,” he says, noting he expects continued growth in carrier billing for small-ticket sales of virtual goods. “The carrier has to also be mindful of how much nonphone minutes billing they put on to someone’s phone bill for higher-ticket purchases because there are other implications.”
Dispute resolution is one. Merchants might eat the cost when customers dispute a small-ticket purchase, but when the value is $100 the situation might be different, Ablowitz says.
Boku expects to address the issue and expand its merchant-customer base through a prepaid initiative that uses traditional interchange for online purchases, Pearson says. The company will announce it partners in that initiative later this summer, he says.
Boku in March announced a deal to bring more online-payment capabilities to unbanked and underbanked consumers using Vindicia Inc.’s CashBox online-payments software (see story).
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