TextPayMe Aims Its Nascent Cell-Phone P-to-P Service at Web Markets

A tiny startup in Redmond, Wash., has signed up about 500 users for its week-old person-to-person payment service based on mobile phones and expects to launch a commercial service in 2006. With a head count of three, including two former Microsoft Corp. employees, TextPayMe Inc. allows individuals with cell phones to pay any other individual with a cell phone by sending text messages. The company, founded just three months ago, is already receiving calls from interested payment processors and cellular carriers and expects to meet with investor groups next month, says Philip Yuen, chief executive and co-founder of the company. For now, Yuen refuses to make volume predictions for the fledgling service, which is in the midst of a try-out, or beta, period set to run another two months. “You can project all you want, but with a week [of beta service so far] it's hard to tell,” he says. “But eventually we expect pockets of users to develop. It's viral growth, or peer-to-peer growth.” Yuen, along with a former Microsoft colleague and a Web developer from Lockheed Martin, started TextPayMe to solve the problem of electronic person-to-person payments, particularly with respect to the local marketplaces, such as Craigslist, now multiplying on the Internet. Transactions on such marketplaces start out on the Web but usually lead to face-to-face meetings, where the issue of payment arises, particularly for those who don't like to carry large sums of money or cut checks to strangers. “If I'm meeting someone to buy a sofa, I have to pay cash or write a check,” says Yuen. “I see us as solving the problem of face-to-face transactions.” Yuen, who says there are now between 100 and 115 such Internet marketplaces generating about $50 million in weekly sales, hopes TextPayMe can capture from 1% to 10% of this action. TextPayMe has looked at the broader remittance market as well as the market for payments to merchants, but Yuen says these markets are already well served by processors such as Western Union and PayPal Inc. One exception is unattended parking, which he says is another target market for TextPayMe. Once a user signs up for an account, he can use his mobile phone to send money to any person who also owns a cell phone. The service works on most phones, though the phone must be capable of sending SMS, or text, messages, and requires no software. The sender types a pay command into his phone, using either the recipient's mobile number or an alias. The TextPayMe server, which receives the text message, sends a confirmation to the sender and prompts him to enter a PIN. The service then sends a message to the recipient to tell him he has been paid. The recipient doesn't have to be an accountholder, but must sign up for an account to gain access to the payment. Accounts are free, and during the beta phase TextPayMe is offering sending and receiving service for free. After that, senders and receivers will each pay 10 cents plus 0.50% per transaction. Accountholders can fund their accounts via the automated clearing house for free, or can use a credit card for a fee of 15 cents plus 1.35%. The account maximum is $500. During the beta phase, the first $200 can be funded via credit card for free. Recipients can get their payments with an ACH transfer for free, or pay 50 cents to receive a paper check. Yuen says TextPayMe hasn't decided yet how it will levy fees for spontaneous payments funded by credit card, though he says the company is leaning toward an even fee split between sender and receiver to compensate for interchange and other acceptance costs. Veteran observers of the electronic payment business will note that TextPayMe is starting out in similar fashion to PayPal, which began in 1998 as a person-to-person payment service based on PDAs. The problem PayPal ran into, says Yuen, is that in those days mobile devices weren't the mass-distributed products they are now. “There is some merit in what PayPal started with, but the problem was back then there weren't too many Palm Pilots lying around,” he notes. “We work with SMS and mobile phones.”