Payments Views

Carol Coye Benson

A Look at Obopay: Mobile Payments Pioneer is Sticking to Its Knitting

Editors Note: Glenbrook, along with the rest of the payments industry, has been watching developments in mobile payments closely.  This is one of a series of posts by our partner Carol Coye Benson. Thus far she has profiled Boku, CashEdge products, Canada’s Zoompass, Zong, Billing Revolution, and Blaze Mobile. Today she takes a look at Obopay, one of the original mobile payments pioneers.

Mobile payments company Obopay is in the interesting position of being the ‘grand old man’ of U.S. mobile payments – they’ve been around the longest – and with the same basic product offering, for person-to-person payments.

I spoke last week with Michael Diamond, Senior Vice President of Business Development at Obopay, about their current status and future plans.

Obopay’s solution allows consumers to make payments to other consumers, by sending an SMS message with their mobile phones.  Obopay operates on either a prepaid basis (you fund an Obopay account, and then send funds out of that account) or on a transactional basis – each outbound payment is separately funded.  In the prepaid case, funding can be either by credit or debit card, or by an ACH transaction “pulled” from your bank account.  The transactional basis requires credit or debit card funding.

Obopay has always positioned itself as “technology neutral”, and there are multiple ways to use the phone for a transaction – using either a browser, an Obopay application on the phone, or by sending an SMS message.  Obopay introduced a Blackberry app last year.  Obopay was also ahead of the pack in recognizing the connection between prepaid and mobile P2P: their original product offering gave customers the option of getting a prepaid card linked to the Obopay balance, and today, a new customer is offered the option of a MasterCard prepaid card.

Obopay charges the sender of funds – the current price is 25 cents – and it is free to receive or withdraw money.  Funding the account – or an individual transaction – is another story.  Not surprisingly, Obopay has been able to refine the details of how the funding works – and what the economic model is – after having been in the market for several years.  Credit or debit card funding is more expensive, as Obopay incurs a merchant discount fee to tap those accounts – they pass this on to their customer as a 1.5% fee.  ACH funding is free, but, since it presents NSF and fraud risk for Obopay, takes longer to be credited to the consumer’s account.  The current lag on ACH funding is 5 days when a customer first signs up.  As Obopay gets more experience with that customer, they will shorten the lag.

Similarly, Obopay has been able to refine their risk management practices, and has established different procedures for customers sending instructions by text message, for example, than for customers using a thick client application.  “We’re pretty settled”, Michael said, “in that we do multi-factor authentication for transactions – we just vary what and how we do this depending on the situation”.

Obopay entered into an alliance with Citibank a few years ago, and has done extensive work to establish a “deeply integrated” variation of their product for Citibank customers.  The alliance allows Citibank customers to either fund an Obopay account from their Citibank checking account (without the time delay), or (and this is the most interesting part) use Obopay to directly send money out of their Citibank checking account.  The wiring of this is as follows:  a consumer sends a payment instruction to Obopay; Obopay sends it directly to Citibank – coming in looking very much like a non-Citibank ATM.  Customers enroll in the Obopay service through a stand-alone portal, using the bank’s authentication: this establishes the key account-to-phone number link to secure the relationship.  Citibank’s financial difficulties don’t seem to be impacting the rollout of the service: “they are still fully engaged”, according to Michael.

Obopay recently established a partnership with Fidelity Information Services, which supplies online banking software to banks; this is particularly interesting given Fidelity’s pending acquisition of Metavante.  The deal, according to Michael, is a “distribution deal” – which allows Fidelity to provide a branded service to their bank clients. Fidelity would enable the customer Obopay account setup through the bank online channel – but after that, transactions would be “normal” Obopay transactions, and not, at least in the early stages, the “deeply integrated” version that is now in place with Citibank.    They aren’t yet in a position to announce any banks that are adopting the service.

Perhaps most significantly, Obopay and MasterCard recently announced that a partnership formed last year was ready to go – to enable P2P transfers between MasterCard accounts, using Obopay as the front-end connectivity to mobile networks.  At first, customers will be able to get a MasterCard prepaid card and use this to send money – but the home run scenario is clearly when (or if) MasterCard issuers in the U.S. sign up, and enable cardholders to send money from and to existing MasterCard accounts.

So where does Obopay stand now?  They don’t disclose numbers – of customers or transactions.  But it was interesting to note that they recently closed on a venture funding round from investors including Nokia – for an undisclosed amount rumored to be in the range of $70 million – which certainly can be read as providing at least some evidence of traction.

Michael and I talked a bit about the typical use cases.  He makes the distinction between emergency use and routine use.  The emergency users, by definition, don’t often use the service and are therefore apt to fund a specific transaction by card rather than ACH.  Currently, card loads are roughly twice the volume of ACH loads, according to Mike, so this could be taken to imply that most users are doing emergency transactions.  Of course, it’s hard to build a business case on occasional transactions, so presumably Obopay is hoping to establish a base of customers who are using the service for routine transactions – but it is hard to tell, absent numbers, where they stand on this.

What’s Next

Obopay has a similar offering in India, and given the importance of the U.S.-to-India corridor for international remittances, it certainly seems logical that Obopay expand their offering to enable this.   Michael agreed that it is a “clear opportunity” but said that Obopay is deliberately going slow – “there are a lot of different ways we could do this – we want to make the right choices”.  In particular, they want to make sure that the risk management model is right.  He mentioned that the active involvement of the Reserve Bank of India in mobile payment regulation is one good reason to proceed cautiously.

It was particularly interesting to me to talk about the directions that Obopay is not taking.  They are not, for example, looking actively at expanding into the point of sale domain – a direction that many mobile payments companies are taking, especially given the sudden blossoming of NFC stickers.  They see, rather, their immediate expansion opportunities in the U.S. as being deeper into the P2P domain – particularly to tap into cash based merchants – the “pay your nanny” scenarios.  “We certainly expect to go there”, Michael said.  They are also very interested in opportunities enabled by social networking and the new classes of transactions around digital content purchases.  Michael thinks this will be huge:  “Pay me on my Facebook page.”

Obopay is also not talking much about wallets.  Michael was skeptical, in fact, about the concept of a single mobile wallet for a consumer – especially if that wallet is directly or indirectly under the control of a carrier.

Obopay also had “no comment” on a recently circulating rumor about a payment product by their new investor Nokia.  One blog described “Nokia Money” as an “attempt to establish a ‘new platform’ (for) making purchases through the mobile Internet”.  Certainly is interesting to speculate on what an Obopay behind-the-scenes role in this could be!

Leave a Reply

6 Comment threads
0 Thread replies
Most reacted comment
Hottest comment thread
5 Comment authors
Mobile PaymentsTom NoyesScott LoftesnessSteve KlebeScott Loftesness Recent comment authors
newest oldest most voted
Notify of
Andrew Jeffrey
Andrew Jeffrey

I assume the valuation speculation was around a $70 million value, not $70 billion?


Andrew, you’re absolutely right – we have corrected the original posting.

Steve Klebe

Going slowly on purpose? Sure! 🙂 Very entertaining!

Scott Loftesness

Steve, I do it (go slow on purpose) all the time! 😉

Tom Noyes

Citi is out of Obopay…. a complete failure.

Mobile Payments

It won’t be long until TelPay changes the game here in Canada for P2P mobile payments. (TelPay is the largest independent payment processing company in Canada)