American Express Invests in Mobile Payments Startup Payfone
American Express has announced today that it has invested in the mobile payment startup Payfone, along with others, to close out a $19 million strategic funding round. The two companies have also formed an alliance to create a new global mobile checkout service where Payfone will combine its mobile authorization and payment services with American Express’s recently announced digital payments platform Serve.
With Serve, users can send and receive money from their accounts, which are funded by a bank account, a debit or credit card, or by money from another Serve account. Serve will be accepted online, on mobile phones or with merchants who accept American Express cards.
With this new partnership, Payfone will use AmEx’s Serve software platform, allowing consumers to purchase both digital and physical goods using their mobile phone number. The move is expected to help strengthen AmEx’s position outside the U.S., where typically Visa and MasterCard dominate.
The other investors in this $19 million round led by AmEx include Verizon Investments and Rogers Ventures, both venture capital arms of their respective mobile carriers. Payfone’s existing shareholders include Opus Capital, BlackBerry Partners (RIM) and RRE Ventures.
Why Payfone is Unique
What makes Payfone unique, is that, unlike traditional payment networks, it leverages the security built into the mobile operator network itself when processing mobile payments. This access allows it to authorize credit and debit cards and mobile operator billed payments (i.e., carrier billing), while also fighting fraud, reducing risk, chargebacks and identity theft.
To do this, Payfone ties the phone’s SIM card, device ID and location to each customer’s account. That means it knows when a different phone is used, or when a phone is used in a different location. It also ties into the global SS7 signaling network for connected payment authorization and processing.
In short, says Payfone’s CEO Rodger Desai, the company’s goal is to make the mobile phone number “the new accepted way to pay.”
AmEx’s Foray into Mobile Payments: Online, Mobile and NFC?
AmEx’s choice to partner with a startup of this kind is a change for the company, which has traditionally used its own proprietary payment network. It hopes, of course, that this will allow it to expand to other markets, by way of its Serve digital wallet service. As Desai says, there are “over 5 billion people worldwide currently have mobile phones, however less than 2 billion have credit cards.” With Serve’s rollout, AmEx is attempting to reach that untapped market.
Although not mentioned in the press releases put out today by Payfone or American Express, one aspect of Payfone’s plans involve the use of NFC technology. According to the company’s own website, it says that, in two years, it plans to be “a payment option for all goods and services, even when you pay by waving your phone in front of a reader at the checkout line.”
Waving your phone at checkout is precisely how you perform an NFC-based transaction. For those unaware, NFC, or near field communication, is a wireless technology that enables data exchange between short distances – for example, between a mobile phone and a terminal at point-of-sale.
Many other businesses are diving into experiments with NFC lately, including American mobile operators Verizon, AT&T and T-Mobile who, alongside Discover card, are launching an NFC-based mobile payments service called Isis, as well as Google, which is (reportedly) launching a mobile payments service with Citibank and MasterCard. Several banks have also been testing NFC-enabled mobile wallets, including Bank of America, Chase, U.S. Bank and Wells Fargo.
To learn more about NFC, you can follow our ongoing series on ReadWriteMobile here.
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