Why Billing Revolution Is Betting on Credit Cards for Mobile Payments

Most payments startups focusing on mobile commerce these days are relying on either direct debit or carrier billing to handle funds transfers. But Billing Revolution, a 2-year-old Seattle-based company, is marketing a system that lets consumers buy products on their handsets with a single click, and charge their transactions to their credit cards. That concept may be starting to gain some traction. On Thursday, Authorize.net, a major e-commerce gateway belonging to Mountain View, Calif.-based CyberSource Corp., agreed to integrate Billing Revolution with its service, making it available potentially to some 250,000 merchants. This followed Billing Revolution's launch of a reseller program in which it is seeking independent sales organizations and gateways to recruit merchants. The company itself has become an ISO for Elavon, the big merchant processor belonging to U.S. Bank. Andy Kleitsch, a former AT&T Wireless executive who founded Billing Revolution and serves as its chief executive, won't reveal how many merchants have signed up with the company. But they include well-known names like The Weather Channel and ESPN as well as mobile-games specialist Gameloft. Kleitsch says his service is designed to work with both physical-goods merchants and sellers of digital content. The service works on any handset with a mobile browser, a feature Kleitsch says comes with about 95% of mobile phones sold today. With Billing Revolution, the first-time consumer enters a card-account number, an expiration date, and a mobile-phone number on a checkout screen. He then touches or activates a “make purchase” button to complete the transaction. On subsequent transactions, he need only touch the button. Kleitsch says the first-time screen can collect more data, such as billing and shipping addresses, depending on the needs of the merchant. But card number, expiration date, and phone number could be optimal. “We found that is the highest-converting enrollment page,” Kleitsch says. The company formats the transaction and sends it to the gateway or processor designated by the merchant. It also texts a receipt to the consumer. Kleitsch says Billing Revolution, which was established in May 2007 and started operations a year later, spent a lot of time on streamlining its mobile-payments process. Besides the single-click capability, the service offers consumers the ability to complete a transaction without resorting to a PC for enrollment. Kleitsch argues that the need to switch from the handset to a computer at any point depresses usage. “That's an unacceptable user experience,” he says. “You must enable the customer on his handset.” Merchants pay a sign-up fee of $99, plus a monthly charge of $29. Billing Revolution also collects a transaction fee of 50 cents, which comes on top of discount fees levied by processors. Signature-debit cards are also accepted. As part of its service, the company will create the checkout page for merchants that don't have a mobile site. Billing Revolution is among a crop of startups that are trying to build mobile-payments businesses that don't rely on new technologies like near-field communication (NFC), a sophisticated interactive technology that has become bogged down in disputes between banks and mobile carriers. That could be an advantage for the startups, say some. “I continually hear from payments-industry players, 'How do I make money now on mobile payments,” says Todd Ablowitz, president of Centennial, Colo.-based consultancy Double Diamond Group, in an e-mail message. “Anything that can generate revenue?without waiting for macro changes in the landscape (like NFC phones)?is highly attractive.” Ablowitz says he is advising Billing Revolution. But, while mobile-payments processors like Zong Inc. and Boku Inc. rely on mobile-operator billing, and Obopay Inc. and other recently established mobile and e-commerce processors use the automated clearing house to debit checking accounts, Billing Revolution has placed its bets on credit cards. Kleitsch argues ACH processing requires the customer to set up an account, a process that again interferes with usage. “For us, a mobile transaction has to be easy and spontaneous,” he says. Carrier billing, he says, is a “fatally flawed” model, since carriers will generally allow only commerce in digital goods and extract transaction fees that can range as high as 50% of the purchase. Nick Holland, a senior analyst at Boston-based Aite Group LLC who follows mobile payments, tends to agree. While mobile-payments traffic is relatively small now, it is expected to rise rapidly in the coming years, creating a significant revenue stream for carriers from billing services. “Carriers are likely to want their piece of the pie, and it's likely to be significant, so avoiding the carrier is not a bad strategy,” he notes. For now, it's that potential latent in mobile payments that is attracting startups like Billing Revolution. Merchants are starting to ask in increasing numbers how to do mobile transactions, Kleitsch points out, adding, “We don't want to miss out on this.”