23 February 2011 

• BilltoMobile and Boku
• Sprint to bypass Banks with BilltoMobile
• BilltoMobile FAQ
• VentureBeat – Boku and Zong go through BilltoMobile
• WirelessWeek – Boku routes transactions through BilltoMobile
• Sprint Mobile Wallet – Cardinal Commerce
• WSJ Carrier Billing – Sept 2010

BilltoMobile is a case study in how to innovate and work with 800lb Gorillas. Founder Paul Kim is a genius in the way he structured this thing.. just a brilliant business model that helps the MNOs monetize their network. Boku and Zong skipped a very important step in their evolution: no carrier relationships. BilltoMobile’s success demonstrates how important detailed knowledge (ex Denal’s telecom billing systems) and relationships are in delivering “innovation” within someone else’s network. What makes BilltoMobile such a great model?

• Integrated into carrier billing systems (significant barrier to entry both in technology and in contractual relationships)
• MNO value proposition. MNOs take NO RISK in enabling these payments. MNOs take a percentage of merchant fees AND they increase sales of their digital goods.
• NO CUSTOMER REGISTRATION. I cannot understate the importance of this to both merchants and consumers.. its like a credit card you never knew about
• Can be used both online and mobile
• Ability to raise limits payment limits $25/mo
• Reduces cost structure (now independent of premium SMS rates)

As stated in the CNN Article

BilltoMobile CEO Jim Greenwell says the spate of carrier wins reflects the hard work the company and its majority shareholder, South Korean’s Danal Corp., have done in the carrier billing field. In 2006, BilltoMobile was spun out of Danal, a leader in carrier billing in Asia. The company quietly began approaching U.S. carriers after the spin-out about using carrier billing, but it took a few years before the company could establish its first deal with a major carrier, which it did with Verizon in March of last year. 

…the challenge was to migrate carriers away from premium SMS, which other mobile payment services like Zong and Boku have used in addition to direct carrier billing. The problem with premium SMS was that premium SMS providers often charged 35 percent to 50 percent fees on top of transactions, which made it only good for digital goods. By tying directly into carrier billing systems, BilltoMobile can bring those fees down to the mid-teens

Zong and Boku never attempted to tackle the “hard work” of carrier integration.. they just leveraged and existing Premium SMS services… now they have paid the price. From an investor perspective this is extremely important. Zong and Boku ARE NOT acquisition targets because they have not constructed a sustainable business model.

The BilltoMobile Sprint agreement will bring a total of 240M US customers  to the service (when combined with recent deals with Verizon and AT&T).  Now that billing to your mobile phone is free from the premium SMS constraints, I would expect to see a move beyond the $25/mo limit once BilltoMobile updates their risk models. As the CNN article above mentions, stepping away from premium SMS also gives carriers a cost structure compete with card payments.   There will be a very interesting play for the MNOs as they combine this service with NFC payment at the POS.

Thoughts appreciated

– Tom