Zong announces expansion of its mobile payments business

Zong is expanding its mobile payment service in hopes of reaching a larger mass market of people who could find it convenient paying for items in games or other applications with their mobile phones instead of credit cards.
Today, the Palo Alto, Calif.-based company is announcing Zong+, a new service that will exist alongside Zong’s original service, which uses cell phone carriers to fulfill mobile payments. By contrast, Zong+ does not use the carriers to handle billing and it therefore escapes the fees and restrictions of the carriers. The end result will be a more flexible mobile payments system for consumers.
Zong’s original service has more than 10 million users across sites such as Facebook, MySpace and Gaia Online. It gives people an alternative to paying for services with credit cards or PayPal. Instead, if the merchant participates in Zong’s system, a user can purchase something simply by giving out his or her cell phone number. The user then types in a PIN code to verify the transaction. Zong then checks the data entered against its records and then passes the billing on to the cell phone carrier. The carrier takes a cut and then fulfills the payment.
Lots of users are participating in the original service, mainly because it’s easier to type in a mobile phone number than a 16-digit credit card. And lots of Facebook apps use Zong so that they can fulfill payments without forcing players to exit their apps. The idea is to make payments frictionless, said David Marcus, chief executive of Zong. The results suggest that Zong is 10 times better at converting shoppers into buyers than traditional credit cards.
Now, with Zong+, Zong will make an interesting offer. If someone buys something with the old Zong such as 1,000 credits in a game, the company will make an offer. It says that it will deliver another 1,000 credits to the user if they sign up to use Zong+. Zong+ is a similar service in terms of fulfilling mobile payments. But it bypasses the carrier’s billing system, so the fees can be lower. On top of that, Zong+ doesn’t have artificial obstacles that the carriers place on transactions. For instance, many carriers limit Zong purchases to $100 a month. They also may limit each transaction to no more than $10 each. With Zong+, there are no such limits, Marcus said.
Zong+ thus gives the user more convenience while allowing for larger purchase amounts, which makes the online merchants happy.
There is a lot of competition in this space, from Boku to Obopay. While Obopay focused on transactions from one cell phone user to another, it has expanded into payments for social games. But Marcus says Zong has a lot of momentum with both merchants and users, helping it get over market obstacles more easily. Marcus said he believes the Zong+ service will result in more volume for online merchants.
Right now, Zong is focused only on using the mobile phone to make payments for goods and services purchased online. But other mobile payments firms are using mobile phones to pay for physical goods. Zong’s biggest merchants include virtual world and gaming sites like Gaia Online, IMVU, Mochi Media and Outspark.
Zong, a division of Echovox, was founded in 2000 and it has signed up 107 carriers to carry its service. The company has 60 employees and has raised $15 million in venture funding in two rounds.