Deal for Zong Hands PayPal New Funding Option for Mobile Payments

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PayPal Inc. will fill a hole in its funding options for users when its parent company eBay Inc. completes its acquisition of fast-growing mobile-payments provider Zong for $240 million in cash.

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Menlo Park, Calif.-based Zong allows users to buy digital goods and charge the purchases to their cell phones. Founded only in 2008, the company has connections to 250 mobile-network operators around the world, operating in 45 countries and 21 languages. Its leading merchants are Facebook and a host of virtual game and other digital-content providers. Neither eBay nor Zong disclosed how much volume Zong handles, but the Zong Web site says the firm is “now processing millions of payments a month.”

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San Jose, Calif.-based PayPal says it processed $3.4 billion in payments for digital goods in 2010. But PayPal users have been limited to funding their PayPal accounts with major credit cards or bank-account options such as the automated clearing house in the U.S. Zong represents PayPal’s first carrier-billing option, a spokesperson tells Digital Transactions News. “What Zong gives PayPal now is the ability to sign up and authenticate and provide a PayPal account with just a phone number, so you no longer need to provide a financial instrument,” the spokesperson says. “That carrier-billing functionality gives PayPal the ability to extend its customer base.” PayPal says it has 100 million active users worldwide and expects to do $3 billion in mobile-payments transactions this year.

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Beth Robertson, director of payments research at Pleasanton, Calif.-based Javelin Strategy & Research, says Zong indeed could help PayPal reach new customer segments. “The biggest thing is they [Zong] have this presence with global carriers in different countries, and because PayPal is global as well it gives an option for non-banked, unbanked individuals in those countries as well as the U.S. for payments,” she says.

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At checkout, a mobile-phone user buying digital goods and paying with Zong types in his cell-phone number and receives a confirmation request to his phone. Once he texts confirmation, the transaction is booked and the customer sees a charge to his mobile-phone bill.

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The deal came together with the help of Dana Stalder, a former eBay and PayPal executive who in 2008 joined Silicon Valley venture-capital firm Matrix Partners. His first investment was with Zong, which has now received $15 million through Matrix. Stalder tells Digital Transactions News that he got Zong and PayPal together “almost a year ago in hopes of initiating a commercial relationship.” The discussions, however, eventually turned into a buy-out deal. “There was a very high strategic fit,” Stalder says.

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In a statement, Zong founder and chief executive David Marcus said, “Our customers love the convenience of paying with their mobile numbers–a number they know by heart, and a device that they always have with them. We look forward to extending our services to PayPal’s more than 9 million merchants around the world. And we’re committed to working with carriers and merchants to help them drive more sales across devices.”

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Steve Klebe, vice president of business development and strategy at BilltoMobile, a unit of San Jose-based Danal Inc., says the eBay-Zong deal “validates what we’re doing. The [mobile-payments market] is still very formative.” Klebe says BilltoMobile is only company with direct links to leading U.S. wireless carriers Verizon, AT&T, and Sprint. Zong routes all its Verizon traffic through BilltoMobile.

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EBay says the acquisition is subject to customary regulatory approvals and should close by Sept. 30.