Mobile Payments: Look to Korea

U.S. unit of Danal gets a boost from $9.5 million venture financing investment.

By Nancy FeigHere on this blog we often air our skepticism about the proliferation of mobile payments. When we bring up that doubt to mobile banking and payments vendors their knee-jerk response to us is very often: "Danal."

Danal, little known in the United States, is the largest payment service company in the world. A public entity in South Korea, Danal pioneered the mobile payment industry in South Korea in 2000. Danal allows consumers to purchase goods and services online by charging their regular mobile phone bills. This service has seen wide adoption in Asia. In 2006, South Koreans alone charged more than $1 billion worth of transactions - representing 70 percent of all digital content purchased online - to their mobile phone bills. Danal currently holds close to 50 percent market share in South Korea.

That's big business. So when the news came out last week that Danal Inc., the U.S. subsidiary of Danal Co., Ltd.,, had received $9.5 million in venture financing led by Morgenthaler Ventures, the industry took notice.

Ken Gullicksen, a Morgenthaler partner, explained his company's investment to The Wall Street Journal. "The same trends that fueled the Korea market - including the increasing popularity of digital fare and new types of mobile services - are now hitting the U.S.," Gullicksen related to the newspaper.

Danal will use the $9.5 million in venture financing to add to its team, commercialize its mobile payments service in the United States and strengthen its relationships with mobile carriers and merchants. In Korea, more than 16,000 merchants already offer mobile payment services to their customers.

It is likely that much of Danal's U.S. marketing will be targeted to the youth market. While Danal's service allows for purchase of physical goods and services, most of the purchases will likely be for digital content like online games, music, videos, ring tones, etc. According to Danal, typical purchases range from $1 to $30.

Danal works by allowing users to charge their purchases at participating Web sites to their mobiles phone bills without having to sign up for an account of even going through a credit card. The customer sends a text to the retailer and the transaction is complete in less than 20 seconds.

In 2005, the South Korean mobile payments market made up 8 percent of the country's total eCommerce market. According to Forrester, the U.S. eCommerce market is on track to be more than $400 billion by 2011. If mobile payments makes up just a fraction of that amount, that's could be close to $40 billion.

Consumers without bank accounts and/or credit cardfs will be the most likely to be the ones to utilize mobile payments technology from Danal. So, banks should pay special attention to this deal. There are no bank intermediaries in this supply chain. That $40 billion down the drain.