Mobile payments processor Zong, which lets users pay for stuff on the Internet by adding it to their mobile phone bills, today announced it has raised $15 million from firm Matrix Partners.Right now, Zong makes most of its money funelling cash into social games on Facebook, but it took Matrix’s money in order to grow from a successful player on Facebook’s platform into a PayPal-killer.
Usually, it’s hyperbole to describe Company A as a Company B-Killer. But in the case of Zong, new board member and investor Dana Stalder wants us to make no mistake: Zong is going hard after the biggest player in the space, eBay subsidiary PayPal.
Dana joined Matrix 18 months ago after five years at PayPal. There he was SVP of product sales, marketing, and technology, helping PayPal grow into multi-billion dollar global payments company. Dana told us he invested in Zong because he thinks it can be bigger.
He gave us three reasons why:
- The consumer proposition: The act of paying by entering one’s phone number into a form is really, really easy.
- The merchant proposition: Dana says Zong is so easy, its “checkout flow” converts 3x to 10x higher than paypal or card based flows.
- Zong’s momentum: Facebook says that soon, there will be just one virtual currency on Facebook. The good news for Zong is that, along with credit cards and PayPal, it will be one of just three ways Facebook users will be able to fund their Facebook credits.
Three reasons we’re bullish:
- We expect Pay With Facebook to make its way across the Web, starting with social buying sites like Groupon.
- Zong’s platform piggy-backing reminds us of the way PayPal grew on eBay.
- Because Zong has relationships with 174 mobile carriers, it technically has access to 1.5 billion consumers. That’s a lot!
Here’s why we’re bearish:
- Zong charges an absurd fee from the cell carriers — something like a 30% markup, which is an absolute non-starter. If co can get fee down to ~2pct, which is typical credit card fee, fine. Otherwise, it’s dead on arrival.
Update: For various reasons, Zong is upset with this article, especially its headline.
Despite a recorded conversation we had with Zong yesterday about its plans to use its new funding to pursue a market beyond social games and virtual worlds and eventually compete with PayPal, Zong would like us to not describe it as a PayPal-killer or even a PayPal competitor.
(You may have noticed we changed the headline from “Guy Quits Billion Dollar Company He Helped Build, Invests In Startup To Kill It” to “Guy Quits Billion Dollar Company He Helped Build, Invests In Startup To Challenge It.”)
This is partially because Zong is working on a partnership with PayPal. We assume it also might be because PayPal is a company that could buy Zong some day.
We expect a statement from Zong soon and will paste it here.
Update 2: Here is that statement from Zong and Matrix.
“Zong has no aspirations to kill PayPal nor is that the thesis for the investment that was made by Matrix Partners. We, in fact, consider Zong to be a complementary alternate payment option to bank cards and PayPal, and is by no means a replacement. We do feel that Zong is on a path to build an industry leading payment platform that has significant scale. The company is a category leader in mobile payments and is solving real consumer and merchant needs, offering an alternative that addresses different payment behaviours, use cases and demographics.”
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