Among other recent interviews on mobile payments, we took a look last month at two companies (Boku and Zong) that are focusing on bill-to-carrier models for digital content purchases in the online gaming arena.  Fascinating, but surely (for my demographic, at any rate) a niche market – after all, how many times have you spent $1.25 for a super-sword to vanquish a foe in an online game?

So it was particularly interesting to interview Rodger Desai, CEO of startup Payfone.  (Disclaimer: my firm, Glenbrook Partners, although not this writer, has an advisory relationship with Payfone.) Payfone is also focused on digital content and a bill-to-carrier model, but with some big differences.

Instead of using SMSs and short codes like ringtone merchants and existing bill-to-carrier payment providers, Payfone operates within the carrier signaling network, a global network that allows carriers to communicate and exchange information between each other.

What’s important here is the implication for the mobile carriers, merchants and developers hooked into Payfone’s hub.  Today, merchants and developers wishing to implement mobile payment as a checkout option, face a number of challenges, according to Rodger: fixed price points, high transaction failure rates, 90-120 day settlement periods, oppressive carrier fees and significant exposure to charge-backs and fraud. Mobile carriers accepting bill-to-carrier mobile payment have been wary of the practice given the high customer care costs it has historically generated. Rodger says that Payfone’s intense focus on user experience and merchant needs has led it to build features like variable pricing, single-click/zero-SMS, guaranteed settlement, rapid payout and robust fraud prevention that will drive merchant choice.  In fact, rather than sharing a hefty percentage of the gross revenue with the carrier, Payfone will enable something that will look “more like a card economic structure than a ringtone structure”, Rodger says.

Desai is betting that merchants and developers are going to love Payfone. Unlike SMS-based mobile payment methods, where “up to 20% of transactions fail” according to Desai, Payfone has built a “zero-failure architecture for mobile transactions that rivals credit card networks and offers rapid payout and guaranteed settlement for merchants and developers”.  According to Desai “the SMS billing infrastructure was not built to support merchants and developers, rather is an architecture established to support the delivery of ringtones” and thus relies entirely on the delivery of low-priority messages to effect billing. In addition, Rodger says, “the system is plagued with fraud related problems – carriers, merchants and developers pay the price for this through high customer service costs and charge-backs.”  Which Rodger says is unacceptable for a scalable payment system. “When we think about online payments, we think of the seamless experience of a credit or debit card.  Merchants like Amazon and Apple have mastered the checkout UI to the point where you can complete a transaction with a single click. Why can’t users with value locked in their mobile account have the same experience?  We think they should and we are going to show the world how.”

Payfone’s strategy is to “bank the rest”.  According to the GSMA, an international association of mobile carriers, only about 1 billion of the 4 billion mobile subscribers across the globe have credit cards.  Merchants attempt to reach “the rest” through clumsy techniques like scratch cards. One “major global music merchant”, says Rodger, “makes about a quarter of their revenue from scratch cards, but just can’t get these distributed widely enough”. What these merchants need, he says, is a ubiquitous payment system and “luckily, mobile carriers have already built the infrastructure to support this globally, which is exactly what Payfone is bringing to the payments world”.

Payfone is getting close to launching their product, and the purposely clandestine company promises you’ll be hearing much more from them in the coming months as they prepare to enter the market.

I’m already beleaguered by my teenager, who demands that I put some extra cash he has dug up into iTunes, so he can buy that movie he wants.  Maybe with Payfone he’ll be able to do that himself!