With Payfone, AmEx Bolsters Its Mobile-Payments Initiative

Displaying its newfound mobile-payments fervor for the second time in just over a fortnight, American Express Co. on Wednesday announced it was investing in a startup called Payfone Inc. and would integrate Payfone’s technology with its new Serve mobile-pay platform. Founded in 2008, New York City-based Payfone uses a consumer’s mobile-phone number to authorize purchases. Its system potentially could make it easier for AmEx to capture more payment transactions and expand abroad, especially where conventional payment cards are scarce.

“Payfone is going to help us speed up our plans for the Serve platform, both from a technical standpoint and geographic perspective,” Dan Schulman, AmEx’s group president, Enterprise Growth, said in a blog post. “The opportunity for mobile payments is not specific to the U.S., and therefore it is important we look at ways to extend Serve, both in developed and developing markets where carrier billing is already an important part of the commerce ecosystem.”

AmEx unveiled Serve in late March, a payments alternative that uses a prepaid card and Serve account number to facilitate online and point-of-sale purchases. The system, which AmEx is testing in Eugene, Ore., is built on the Revolution Money platform that AmEx bought in 2010.

With Payfone, consumers can buy digital or physical goods using their mobile-phone number and charge the transaction to their monthly mobile bill, bank account, credit card, or Serve account, according to AmEx. Besides its carrier billing, Payfone is the “first and only” mobile-payment provider that uses so-called Signaling System No. 7 (SS7) telecommunications protocols, Schulman said. What that means is that “when you travel internationally, as you step off the plane your mobile device is ‘handed off’ to a different network, Payfone uses SS7 to verify you are a paying customer,” Schulman said. “This technology has the ability to enable mobile payments in any market as long as you are connected. It’s a network built for payments.”

Payfone co-founder and chief executive Roger Desai noted in a news release that more than 5 billion people worldwide have mobile phones, but less than 2 billion have credit cards. “It’s our goal to make the mobile-phone number the new accepted way to pay,” he said. “We look forward to working with American Express and our mobile-operator partners in defining and driving the mobile-payments industry.”

Questions remain about the deal, such as how many merchants use Payfone, revenue arrangements, and how charges would be routed among users’ accounts on the back end once Serve and Payphone are integrated. Because of the credit risk, wireless carriers tend to accept relatively small charges. AmEx and Payfone executives weren’t available for comment late Wednesday. But Beth Robertson, director of payments research at Pleasanton, Calif.-based Javelin Strategy & Research, says AmEx is right to be investing in the mobile arena. “Everybody in the payments business needs to take mobile payments seriously, it is something that is coming to fruition,” she says. “If you’re in the payments business, it’s an area that’s very much up for grabs at the moment.”

AmEx was the lead investor in a $19 million funding round for Payfone announced Wednesday that includes investment affiliates of Verizon Communications Inc. and BlackBerry maker Research in Motion Ltd., Canadian media and telecommunications company Rogers Communications, and two other investment firms. Exactly how much each party invested wasn’t disclosed. Payfone said it would use the funds to “continue innovations” and expand globally. Payfone raised $11 million last year.

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