It was barely a month ago that American Express launched its futuristic mobile payments system Serve, and it’s already moving to reinforce it by investing in a small firm that makes mobile transactions cheaper and more secure.
Back in August 2010 Payfone raised $11 million in Series B funding, and it’s just closed the most recent round, with a $19 million dollar pot. Obviously Payfone’s tech is hot–hot enough to get American Express, Verizon Investments, and Rogers Comms. involved alongside existing backers. Amex is particularly important in this list because as part of the deal Payfone’s mobile payments systems will be integrated into Serve, which is Amex’s attempt to reinvent its infrastructure and grasp the future business opportunities offered by the rapidly evolving mobile digital payments space.
But what exactly does Payfone do? Their website states the firm is “all about mobile payments,” which is nothing particularly novel, but the novelty is that Payfone uses the cell phone network itself to guarantee that a mobile payment is valid, can be funded, and isn’t fraudulent.
The trick is to use the same guarantor system that different networks use when a roaming client from another grid first arrives on their system–the instant a roaming phone call is made, the networks check back with the host network to make sure the client can pay. It’s similar to the way those portable card-processing boxes we’ve all used in stores work, but because it’s built into the infrastructure of the cell network itself, it’s faster and more resilient than using a modem-style version. Payfone also ties unique phone ID data to the transactions, along with location data, to doubly check client and vendor identity and prevent fraud. As a result, it imagines its service can prevent theft, and thus result in lower fees.
Amex suggests that with Serve and Payfone you’d be able to link your cell number to a variety of credit and debit card accounts, and then pay swiftly and securely at the checkout in stores.
If that sounds familiar, then it should–it’s almost the exact same process needed for wireless NFC credit card payments, a system we expect to see exploding over cell phones and smartphones from about now onwards. And that reveals Amex’s plans for all to see: This investment is a precursor to enabling NFC payments from phones in stores.
And since location data is securely included in Payfone’s protocol, it could also enable a secure way for NFC phone owners to transfer money between themselves merely by putting their phones together–Payfone would do all the fund verification, work out the phones are co-located, and Amex’s Serve would handle the transaction. More than this, the investment in Payfone has a slightly tactical flavor because Amex could have invested instead in technology that didn’t use cell phone network infrastructure…and hence it’s a sign Amex knows it needs the networks on its side if it’s to be a player in the upcoming market.