First, There Was Card on File. Now Boku Brings ‘Phone on File’ to Online Payments

For years, merchants like Amazon.com Inc. and Apple Inc. have streamlined online payments by letting consumers charge stored credit cards with a single click, using a technique called card on file. Now, a similar concept is coming to carrier billing, the payment method used by merchants to charge online purchases to consumer accounts at mobile operators.

San Francisco-based carrier-billing processor Boku Inc. on Thursday rolled out a service it calls Phone on File, which lets mobile users charge purchases to their mobile number with a single click or tap. Once the user sets up the service with a merchant, he can use it across all devices, including tablets, desktop computers, and TVs. Boku claims to be the first to offer this capability.

As with ordinary carrier billing, the purchase amount appears on the user’s next mobile bill. Boku handles communication from the merchant to the user’s mobile carrier via a back-end application programming interface.

Unlike ordinary carrier billing, however, the Phone on File service doesn’t require a confirming text message with each purchase. The user authenticates himself via an SMS message only on the first transaction.

With the new service, Boku clearly has card-on-file systems—and the streamlined user experience they offer—in mind. “We’re going to make the checkout flow feel more like a credit card,” Adam Lee, chief product officer at the 6-year-old company, tells Digital Transactions News. “Card on file is pretty commonplace in the credit card world but it’s not common in the carrier world.”

Boku works with more than 300 mobile carriers around the world, a number that received a significant boost in October when it bought mopay, a German carrier-billing processor. Of these, around 100 carriers account for the “bulk” of Boku’s dollar volume, Lee says.

The company has been running Phone on File for several months, and is rolling it out with Thursday’s announcement. But carriers around the world have been building the capability for so-called direct billing—transactions without SMS authentication—for the last four years or so, setting the stage for the new service, Lee says.

Still, Phone on File has required some convincing, he adds. Carriers were reluctant to trust a standing approval and wanted the ability to impose limits. So Boku lets carriers add time or dollar restrictions if they choose. The approval can stand for only 30 days, for example, or only for transactions under a dollar cap. Over those limits, users must re-authenticate. “These are the safeguards we had to build to make sure mobile operators are made sufficiently comfortable” with Phone on File, Lee says.

Now Boku hopes the new service will unlock new markets among both merchants and consumers. Early adopters of the service include Facebook Inc. and online-music provider Spotify USA Inc., which has used it for recurring subscriptions. For these merchants, Phone on File has raised conversion rates an average of 5% and cut so-called billing failures for returning users by half, according to Boku data.

The processor positions the service to merchants as a faster alternative to credit card entry that opens up a market of consumers who own a handset but no card. Phone on File, which is available in the United States, the U.K., Germany, and Italy, “introduces carrier billing to classes of merchants that would not have considered carrier billing,” says Lee.

One reason many merchants have been reluctant to adopt carrier billing is that the mobile operators have extracted a sizable fee, now often in the 10%-20% range, to compensate for risk. Lee argues those fees will decline over time as more merchants add more volume through services like Phone on File. “The fixed cost the carrier has can be amortized across a broader class of merchants,” he says. Boku doesn’t disclose its own fee, but Lee calls it “relatively minor.”

Mary Monahan, who follows mobile payments at Pleasanton, Calif.-based consultancy Javelin Strategy & Research, says Phone on File’s single-click experience should appeal to consumers, especially the young and the underbanked, two segments of consumers who are typically attracted to carrier billing. “It could have a good uptake,” she tells Digital Transactions News.

But the question of merchant acceptance is likely to be determined by the same demographics, she says. Merchants that don’t do much business with those groups, she warns, may not see enough benefit to warrant adding the new method.