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Telco-backed online mobile-payments company Boku is seeking to expand to the physical point of sale using NFC phones, contactless stickers and conventional prepaid cards and is partnering with MasterCard Worldwide to help with the move.

U.S.-based Boku, along with MasterCard, today announced the new product, Boku Accounts, which Boku said would enable mobile operators to roll out telco-branded prepaid payment cards, as well as prepaid applications on NFC phones and passive contactless stickers. 

Consumers could tap the cards, stickers or phones to pay for purchases in stores and restaurants that accept MasterCard's PayPass application. The prepaid cards would sport a contactless interface but also could do conventional magnetic stripe or EMV transactions for the many markets with a low penetration of PayPass-enabled POS terminals.

UPDATE: A Boku spokesman told NFC Times there is no exclusivity with MasterCard and the "white-label" payment platform could support other payment networks. Boku Accounts is launching with MasterCard, however.

The platform also supports discounts, loyalty programs and other offers, which telcos could deliver to consumers based on “demographics, purchase history, competitor shopping patterns, and geolocation,” said the company, which has developed apps for Android phones and the iPhone to support the offer.

Boku's senior vice president for product marketing and strategy, David Yoo, told NFC Times the company has received strong interest in the product from telcos in discussions over the past six months. Using the platform, the operators would take a cut of payment transaction fees and could also earn revenue from merchants when consumers redeem coupons, points or other offers. Boku would also collect fees from merchants. 

“For operators that have no card program or licenses, we can provide the entire solution in the box; they slap on their logo,” Yoo said, adding that the relatively few telcos that already have banking or e-money licenses could expand their reach with the platform, including with the offers. 

Prepaid payment service provider IDT, which has a banking license and is certified to issue cards accepted in both the MasterCard and Visa payment networks, would issue the cards and PayPass applications for telcos in Europe. Boku has another prepaid issuer lined up for the United States, which it declined to name.

“MasterCard wants to provide these services with us potentially to set up new issuing partners around the world,” Yoo said. “MasterCard lends their brand and acceptance network and Boku provides all the product and services and technology that integrates into the MasterCard network, so operators can brand it to their customers.”

Some mobile operators are already collaborating to build common NFC platforms to redeem coupons, rewards and offers, as part of joint ventures or consortia. They include Isis in the United States and the three largest telcos in the United Kingdom.

Yoo said Boku has been talking to some of the operators that have formed groups or joint ventures, but he declined to name them.

Boku next week will announce a new round of funding, with a large mobile operator group participating, said the company. And a UK telco is trialing the Boku Accounts platform internally, though Yoo declined to name it. END UPDATE.

Boku has raised nearly $40 million from venture capital firms since its formation in 2008 from such Silicon Valley venture capital firms as Andreessen Horowitz, Benchmark Capital, DAG Ventures, Index Ventures and Khosla Ventures.

It has deals to date with more than 240 mobile operators in 67 countries to enable consumers to purchase virtual goods using only their phone numbers and a confirmation via their mobile phones. Consumers get billed for the micropayments, for such purchases as video game credits, on their monthly phone bills or the purchases are deducted from their prepaid mobile accounts. 

The fees physical merchants pay will be much different from the high charges sellers of virtual goods incur on Boku's carrier-billing model. In the physical world, merchants will pay the same rate they pay on conventional prepaid card programs, but Boku mobile operators will take a cut of the transactions instead of, say, a banking issuer. Merchants would balk at paying higher total transaction fees. 

For online payments, Boku now collects a single-digit percentage of each transaction from virtual goods merchants for providing the global m-payments platform, including handling risk management, settlement and related services. Mobile carriers take a cut of between 5% and 45% of the purchases, Boku president Ron Hirson has said.

Competing with Banks, PayPal, Google
The product, if Boku gets it off the ground, would compete directly with major banks as well as PayPal, the e-commerce payments division of eBay. The much larger PayPal is attempting its own jump to the physical point of sale, planning to enable consumers to pay in-store by tapping their phone number and PIN code into POS terminals or swiping conventional cards. PayPal intends to support NFC later.

UPDATE: It would also compete with the Google Wallet, which like Boku Accounts supports mobile prepaid cards and PayPass. Google Wallet also stores a credit application issued by Citigroup.

But unlike Google, which seeks to enable consumers to redeem payments, coupons, rewards and offers in a “SingleTap,” the Boku Offers and Loyalty platform does the transaction away from the POS terminal. The payment processor links to Boku's servers to redeem the discounts or other offers to the consumers' prepaid accounts on the back end.

Google Wallet is designed to do the payment, couponing and offers all on the terminal. Relatively few merchants can support the SingleTap concept, however.

Yoo said the network-based redemption means existing POS terminals, even though they do not support contactless, could process the discounts, points and other offers. 

Challenges Ahead
But the Boku Offers and Loyalty platform comes with its own challenges. Besides having to sign up all new merchants to accept the nonpayment applications, merchant payment processors would have to tie into Boku's servers. Yoo said only one MasterCard-certified processor, which he declined to name, so far supports the platform.

It's also unclear whether transaction times to do payment and redeem offers and coupons over the network would take significantly longer than online payment alone. And in countries that do a majority of transactions offline, at the terminal, using EMV chip cards, there would be complications to support the online offers.

In addition, targeted promotions based on demographics, purchase history, shopping patterns and geolocation would require customers to opt-in, and it's unclear whether the technology behind many of these advanced customization services is ready yet. END UPDATE.

There are still other challenges. MasterCard still has to integrate the payment service into its network. And enabling the service on NFC phones faces the same problems as with other NFC commercial payment launches. That includes getting phones into the pockets of consumers and, once there, managing the applications on secure elements in the handsets.   

At present, the Boku online mobile-payment system competes with MasterCard and Visa, in a sense, though many of the small purchases, such as video game credits, would not have gone through MasterCard or Visa to begin with. Boku hasn't released transaction volumes. 

Whether Boku’s bold attempt to expand into in-store purchases succeeds remains to be seen. It will be a big jump from enabling mobile subscribers to buy Facebook credits to competing with large banks and PayPal at the physical point of sale.