Hidden Fees, Stigma Hold Back SMS Billing in Adult, Mainstream

Bob Preston
CYBERSPACE — High fees and the usual resistance to adult entertainment are preventing text-message payment solutions from catching on in the mobile world.

Text-message, or SMS, payments let consumers instantly spend money with a few clicks of the keypads on their mobile phones, as opposed to the more traditional payment methods, which require consumers to get out their credit cards and go through a full billing service.

EncoderGuys Owner Nader Fasheh told XBIZ that he's in the midst of exploring content delivery over the iPhone, and he thinks mobile adult content will be a long-term winner for the industry.

"From what I know, SMS billing is growing, and I keep hearing SMS billing will be the future of online billing," he told XBIZ.

Dozens of SMS payment companies have already sprung up, but on the adult side of the business, a simple resistance to adult transactions is preventing SMS billing from taking hold.

That isn't to say that mobile payment solutions don't exist in the U.S. — they're just not as good. Harvey Kaplan, co-founder of BustBox.com, told XBIZ that in the U.S., adult companies have to make do with billing solutions that fall outside the control of carriers, none of whom allow adult transactions.

According to TopBucks' Q Boyer, the holy grail for U.S. based adult companies would be if one of the big boys were to suddenly allow such transactions.

"If, say, AT&T came out tomorrow and said 'we're now supporting adult billing via SMS over our network,' that one step would go a long way toward making mobile adult entertainment a big revenue stream for U.S. companies," Boyer said.

In order for such a paradigm shift to happen, Kaplan said that U.S. carriers would have to implement some kind of age verification. He explained that in the U.K., adult websites ask users to present some kind of ID before delivering content.

But even if such a change were to happen, SMS billing still presents some problems. Leading tech analyst Michael Arrington said that high carrier fees are preventing this convenient service from becoming more popular with mainstream companies.

Specifically, Arrington looked at two leading SMS payment services, Zong and Mobillcash. In both cases, Arrington criticized companies who use these mobile payment services to scam consumers with so-called "legacy" transactions — where a user downloads a free ring tone only to find they've signed up for a monthly payment of $20.

But more important, Arrington pointed out that mobile payment companies often allow such exorbitant payments to go through because they wind up paying 30-50 percent of their money to U.S. carriers in the form of fees.

"Those transaction fees are severely limiting the size of the market," Arrington wrote for TechCrunch.com. "Lots of merchants and application developers would love to take mobile payments, but paying 40 percent or more of the transaction to the carriers is a non-starter."