It’s easy to gloss over the details of how mobile payment companies design their products to make money. So we took a closer look at mobile payment company Zong‘s new “Zong+” service, announced today. It allows users to pay with their credit or debit cards. Here’s what’s going on, and why it matters.
What Zong already does
If a user wants to, say, buy some more virtual poker chips for a poker app on Facebook or MySpace, or buy Facebook Credits, Zong lets them pay using their mobile phone account. A user first clicks on the Zong logo within the payment wall, pops open Zong’s payment window, toggles the amount of the virtual currency they want to buy, and enters their mobile number. Then, Zong sends a text message to the user’s phone with a unique personal identification number (PIN) for the transaction.
The user takes that number and enters it within the payment window. Their account in the game is then credited with the virtual currency amount that they’d decided to purchase, and their mobile phone account is billed. The mobile carrier takes a 40% to 50% cut of the transaction. While Zong doesn’t ask users to create an account at this stage, users can opt to have it remember their phone number for the next purchase.
How Zong integrates card payments, starting now
If user completes a regular Zong payment, they’ll also see an extra window that asks them to upgrade to Zong+, with the additional enticement of getting free credits equivalent to the amount they already purchased. In some sense, it’s like the sorts of offers often available alongside Zong and other payment methods in games, where you can earn points in a game in exchange for signing up for new services.
If the user chooses to upgrade, they are then asked to enter brief details about themselves, confirming their name and their phone number, and then provide their credit or debit card of choice. The process still utilizes the mobile payment confirmation method, so a credit card purchase will still be confirmed by a mobile PIN text instead of a PayPal-style web purchase.
What does this mean?
For users, the benefit — beyond the free virtual currency — is that they have a single service for doing payments. Carriers often restrict mobile payments to $9.99 or less per purchase, but with these card payments Zong will let users buy much more if they want. For some online games, users may want to spend $40 or $50, and this is an easy way for them to do it.
By pushing card-based purchases instead of mobile-billed purchases, Zong is sort of competing more directly against PayPal (the established leader in web payments). In terms of the interface, the mobile payment method may be easier for some users to do than going through PayPal’s web-based card payment process. Especially if the user is already using Zong but not PayPal.
In terms of competitors, Obopay, for example, offers a mobile billing service that allows a user to provide their mobile number and pay without using their phone. However, that process first requires users to create an Obopay account, as we covered in more detail yesterday.
For gaming companies, and really, anyone else selling something online, another benefit is that Zong+ users do not come with the carrier fees — meaning more money for Zong and the company share. Zong chief executive David Marcus tells us that if around 15% of a game’s paying customers pay through Zong+, the game can potentially double its revenue.
So, will that make the carriers upset about not getting a fat slice? Marcus doesn’t think so, as he sees the additional service another reason for users to pay through a mobile-based system instead of a web-based one. In other words, sometimes a user might want to bill a purchase to their mobile phone, and sometimes they might want to bill it to a credit card. Having the mobile-billing option in place means more users might gravitate towards the service, and decide to bill their mobile accounts more often.
In sum, this is an interesting move by Zong to try to make itself a more central way for people to buy virtual goods and other digital items. The first customers, hi5 and IMVU, are beginning to roll it out now, as are may of the other 1,000 or so developers that Zong works with. We’re interested to see how the new service performs.
To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.