Race is on to let phones act like credit cards

This is why investors, start-ups, and major corporations are pouring money into services that make it easier to use cellphones to buy goods and transfer money. The aim is to turn phones into virtual credit cards or checkbooks, enabling the kind of click-and-buy commerce and online banking that people have come to expect on their PCs.

But shrinking those services to fit onto cellphones presents serious challenges.

The services must work on many different phones and through many service providers, which usually control the billing. That adds complexity to the already tricky business of safely and securely transferring funds.

Mobile payment systems have been tried before, with only modest success. Driving a new flurry of deal-making, analysts and executives say, is the success of the iPhone, BlackBerry, and other sophisticated devices. These phones make complex interactions easier, and they have shown that people on the go are willing to spend on music, games, and virtual goods, like a $2 costume for a character in a video game.

Now the race is on to develop new payment systems - and to get several percentage points in fees from each transaction.

“A lot of big players with big bucks are investing a lot of money in this,’’ said J. Gerry Purdy, an industry analyst for Frost & Sullivan, a market research firm. “They’re seeing that returns could be so huge.

Obopay, a start-up that lets people transmit money via text message, raised $35 million from Nokia’s investment arm in March. That was the single largest investment in a financial services start-up this year, according to the National Venture Capital Association.

Last week, MasterCard introduced a service called MoneySend that uses some of Obopay’s technology.

Also last week, a mobile payments start-up called Boku said it had received $13 million in venture capital financing. Boku views itself as the mobile phone’s answer to MasterCard or Visa. But instead of relying on credit card numbers, Boku asks users to type in their phone numbers. The system then sends a text message to buyers asking them to authorize the transaction with a texted response, and the charge appears on their mobile phone bill. Carriers can take up to 50 percent of the purchase price, while Boku takes 5 percent to 10 percent.

Mobile payment companies also need to get cooperation from merchants, which must add a payment option to their mobile sites or applications.