AmEx Invests in Mobile Payments Start-up, Builds on Its Virtual Wallet

American Express is stepping up its mobile payments offensive. Less than a month ago AmEx launched Serve, a virtual wallet that looks very much like PayPal. Last week we learned that the company was the lead investor in Payfone, a mobile payments start-up that will be integrated with Serve.

The News: AmEx Invests in Payfone

So Payfone gets $19 million in strategic funding from a group of investors, lead by American Express and also including Verizon Investments and Rogers Communications. The start-up had already raised $11 million last year.

How Will the Alliance Work?

As part of the deal, Payfone will integrate its platform with the fledgling Serve. The joint company will offer customers the option to link their mobile numbers to various forms of payment, including their mobile phone account itself, as well as their Serve account, which can be funded through transfers from bank accounts, debit cards, credit and charge cards, or other Serve accounts.

When the customer wants to make a payment at a participating website, she would select the Payfone option and, after a one-time SMS PIN verification process, the transaction amount will be charged to the linked account.

Payfone’s Website

I have to say a few words about the way Payfone has presented its platform on the company’s website, because it is indicative of a pattern that is developing among mobile payments start-ups.

Payfone’s is a very well designed website and the images are great, but there is one thing I just can’t understand and it is how the service works for consumers. I went through the slides in the “Solutions” section of the website several times and still could not figure out exactly how consumers would pay for whatever they purchased.

The first slide informs us that with Payfone consumers a “credit card-like mobile purchasing experience.” Then the fourth slide tells us that consumers are offered “payment options like subscription, try before you buy, freemium, gifting, pay-per event and many more.” But where is the money coming from?

Now, I understand that the website is designed to target merchants, rather than consumers, but this is still a glaring miss. How difficult is it to state that the purchase amount will be added to the customer’s monthly phone bill? The only reason I know that this is how payments are made is that I read the press release, which states that “Consumers will be able to link their mobile numbers to a variety of payment methods including their pre-or-postpaid mobile operator account, as well as via a customer’s Serve account.”

The Takeaway

Payfone is designed to be used by consumers without credit cards, which is definitely an underserved market. However, American Express’ involvement only makes sense if you believe that the Serve project itself makes sense, something I very much doubt.

It seems to me that if American Express wanted to benefit from the mobile payments revolution in a serious way, the issuer would do much better to direct its resources toward creating a platform to enable its millions of existing customers to use their credit card accounts directly through their phones, much like what Sprint and others are working on. If they wanted to pay for something online, AmEx’ customers would simply select the credit card option at the checkout.

Image credit: Wikimedia Commons.