Payfone Inc., a provider of mobile- phone security, is raising $10 million from Early Warning Services LLC, a provider of fraud-detection tools for banks and financial-services companies.
The deal, part of a commercial agreement between the companies, brings New York-based Payfone's total funding to about $40 million, Payfone Chief Executive Officer Rodger Desai said in an interview. Payfone's other investors include American Express Co., Opus Capital, RRE Ventures and Relay Ventures.
The investment values Payfone at $500 million, according to Tom Taulli, who analyzes acquisitions for Los Angeles-based IPOPlaybook.com. As consumers shift more of their financial activity to smartphones and tablets from personal computers, there's a growing need to keep information secure and prevent fraud in order to protect users and financial institutions, Desai said.
"It'll limit the friction consumers face when dealing with banks," Desai said. "We are at the very beginning of the opportunity for mobile authentication."
Payfone received a pre-emptive takeover offer of $200 million to $250 million from a bank last year, Desai said. No deal resulted, he said.
"We are in no rush to sell," Desai said.
Banks that use Early Warning will also implement Payfone's technology, the CEO said. Early Warning, based in Scottsdale, Arizona, is owned by Bank of America Corp., BB&T Corp., Capital One Financial Corp., JPMorgan Chase & Co. and Wells Fargo & Co.
Payfone's system communicates with mobile carriers' networks, helping to detect suspicious behavior, such as opening accounts in multiple banks in a row, alerting banks.