(April 27, 2006) The recent launch of mobile-payment services based on short-message service (SMS) transmissions is casting a spotlight on specialist gateways that provide links from payment processors to wireless carriers. One, MX Telecom Inc., counts among its clients both PayPal Mobile, which PayPal Inc. launched earlier this month (Digital Transactions News, April 6), and TextPayMe, a Redmond, Wash., startup that began processing transactions in December (Digital Transactions News, Dec. 21, 2005). Now MX Telecom, which provides gateway services for a variety of SMS-based messaging, sees a burgeoning market in mobile payments. “We send several tens of millions of messages a month, and a relatively small number are payments, but we think it’ll take off,” says Alex Moir, chief executive of North American operations for the company, which is based in London but maintains a U.S. office in New York. “We’ve started to field more and more inquiries from startup mobile-payment providers.”

Six-year-old MX Telecom is one of a select group of companies that focus on providing mobile network connectivity to service providers. Profitable from its first day in business, the company processes and routes SMS messages after they have been received by the subscriber’s carrier. In the case of PayPal Mobile’s Text to Buy feature, for example, MX Telecom interprets the message’s unique short code and ensures that the message is routed to PayPal’s servers. It also processes confirmation messages PayPal sends back to users. With Text to Buy, PayPal Mobile users use product codes and five-digit short codes provided by marketers to buy merchandise as it is promoted in various advertising media. In this way, payment processors and other service providers avoid the need to negotiate separately with each carrier. “We’re providing the gateway to all those carriers,” Moir says.

MX Telecom, which also provides a gateway for Transport for London, which allows motorists to use SMS payments to pay so-called congestion fees to drive in the central part of the U.K. capital, has links to more than 40 wireless networks, including all so-called tier-one carriers in the U.S. These include Alltel, Cingular Wireless, Sprint, T-Mobile, and Verizon Wireless. It is negotiating with tier-two networks, Moir says, but the tier-one companies cover 90% of U.S. subscribers. Still, it’s up to each carrier to determine what traffic it will carry. Cingular Wireless, for example, has so far not agreed to support PayPal Mobile.

Moir figures SMS-based mobile payments, which are more common in Europe, are set to explode in the U.S. “You’re just hearing about this in the U.S.,” he says. “It’s growing from a pretty small base, and most of those initiatives have just been launched.” Text messaging, he says, remains a sort of fetish among the sub-21 set, but not for long. “It’s all about teens [right now] but that [demographic] is changing pretty rapidly,” he says. “It’s such a viral thing that it’ll spread.”