Use Your Phone Number to Make Online Purchases

Name: Boku

Quick Pitch: Use your mobile phone number instead of your credit card to buy online.

Genius Idea: Online shopping once required a credit card. Boku makes it possible to make purchases online using a mobile phone number instead. Instead of keying in your credit card number, address, and security code, all you need to make a purchase using Boku’s payment option, Paymo, is your phone number.

Because the cell phone carriers charge merchants fees as high as 35% for this kind of transaction, Boku started out by exclusively targeting virtual goods. The production cost for such goods is minimal, and therefore their retailers can typically afford the high carrier fees. The company has since expanded to providing its payment option for online services like dating sites and for digital goods like music downloads.

Co-founder Ron Hirson says that the company next aims to expand as a payment method for pay-walled content. Eventually, as carrier rates come down, it aims to be an easy checkout option on ecommerce sites and for frequently purchased physical goods like fast food, coffee and transit.

Boku launched in 2008 when Hirson, Mark Britto and Erich Ringewald — all of whom had founded and sold other companies at this point — acquired mobile payment companies Paymo and Mobillcash. Since then, they’ve raised more than $40 million in three rounds of funding and have partnered with carriers in 64 countries, most recently Brazil and Israel.

While Boku faces competition from companies like Zong, onebip and Fortumo they claim to have the largest reach. Their partnerships with more than 200 carriers gives them access to about 2 billion potential customers. How successful Boku will be at making their payment method an option on more of these 2 billion people’s purchases will depend largely on carrier fees. The high fees that carriers currently charge merchants will unlikely outweigh the convenience that Boku provides their customers.

Partnerships with Vodafone in the UK and AT&T in the US have inched Boku closer to becoming a plausible option for a wider variety of goods by creating higher price points, which allow consumers to make larger purchases and lower carrier fees.

With the company already making about one transaction every second, we’re not making an astounding prediction by betting on its success. Boku was smart to target the global market from the start. There are about 5 billion mobile phones worldwide, and — especially outside of the United States — not all of their owners have credit cards. Enabling these people to make online purchases increases merchants’ potential customer pools.

Boku also takes advantage of three things the world is becoming increasingly obsessed with: online shopping, convenience and secure payments (eBay CEO John Donahoe recently pronounced mobile the safest way to pay online). Although Boku declined to comment on rumors that both Apple and Google want to acquire it, we understand why they’d be interested.