KreditFly Bypasses the Carriers for a New Kind of Mobile Payment

Mobile payments may be the most promising new online payment method in the United States. But consumers have been slow to go mobile for payments, owing to unfamiliarity with the idea of paying through their phone and several difficulties on the business side. KreditFly, a new company emerging today, has a plan to bypass these problems and get players of social games and MMOs on board.

KreditFly was founded by Paul Kim, an entrepreneur who previously helped the Korean firm Danal spin off a startup called BilltoMobile. Danal re-acquired BilltoMobile in February for almost $100 million, and Kim moved on to KreditFly, which he helps will solve problems he encountered at BilltoMobile.

The biggest of those problems is mobile carriers. In the US, carriers grew fat over the past decade charging hefty set fees to the ringtone business, which itself could get away with losing a large portion of each ringtone it sold.

Most ringtones were sold through premium SMS, in which the consumer uses text messages to agree to a transaction. With parts of the ringtone business continuing today, carriers have been slow to cut those premium SMS fees to a level that would be competitive with payment methods like credit cards or PayPal.

So KreditFly wants to simply cut out the carrier. The company has a pretty simple idea: just make the initial mobile transaction as easy as possible. To buy a small amount of virtual curency in a game, you just have to enter your phone number. You’ll get a text message with a confirmation code, that you then enter along with an email address. And that’s it.

This payment flow feels a lot like premium SMS, but KreditFly isn’t putting a charge on your phone bill — or anywhere else, in fact. The initial charge is a micro-credit, and you can get away without paying for it at all. But in exchange for the $10 of free virtual currency, your phone number and email address will be blacklisted from KreditFly forever.

What KreditFly hopes will happen is that you’ll choose to pay. Some time after the initial payment, you’ll get a reminder from KreditFly to pay, which you can do with a credit card, retail store payment, money order, or almost any other non-mobile payment method.

Once you’re in the service, you have to keep your account fueled up. The micro-credit is one-time-only. But after the initial payment, KreditFly should have an easier time getting people to keep using; getting new customers to try the first time has always been the biggest marketing hurdle.

Paul Kim, the company’s founder, seems pretty confident that he’ll be able to outdo other mobile payment companies. Despite some recent changes like AT&T’s direct mobile billing plan, Kim is counting on carriers not moving quickly enough to bring down their transaction costs. “For the rates to come ubiquitously below 20 percent is just not going to happen in the near term,” Kim says.

As for its own payment methods, the KreditFly is patenting its payment methods and has ways to keep from blocking the new user of a previously blacklisted mobile number.

The remaining risk seems to be that a high percentage of users will default on their payments. If this happens, the merchant that KreditFly is working with will take the hit. But Kim says that initial testing will bear out the superiority of KreditFly in the United States over premium SMS companies like Boku and Zong, both of which are now test partners for Facebook Credits.

“No matter how you slice and dice the numbers, when you actually net out fees, it’ll be better than premium SMS. You don’t get screwed for 50 percent of your transaction,” Kim says.

KreditFly’s initial partner is Aeria Games, a portal with about 15 million users. The company has an undisclosed amount of funding from Altos Ventures and ATA Ventures.