Virtual Goods Payment Method Breakdown – Mobile/Cards Rising

(The following appears courtesy of Shark Jumping. See all of Sean Ryan’s blog entries at

I was asked this past week by a few people to elaborate on the comments I made at the Engage conference 2 weeks ago outlining how I see most payment methods occurring across the various companies I work with.  So with the caveat that this is more relevant for US-centric companies with at least a portion of teenage audiences, the breakdown generally is:

50%: Credit Card & PayPal  Visa

  • The US is a credit card-centric country, and PayPal started here, so it’s generally the highest contributor.
  • Advantages: low transaction fees (usually less than 5%) and ability to do recurring payments
  • Disadvantages: new credit card law makes it even harder for under 21 crowd to have cards, and the higher “friendly fraud” issues in interactive entertainment cause issues for payment providers, leading to publishers being cut off by their processor
  • Suppliers – many on the credit card side, plus PayPal in general

20%: Offers & Surveys Netflix

  • This rapidly growing category started on Facebook, and has now spread to all virtual goods based sites.  In this case, users can either fill out an appropriate actual market research survey and receive currency for it, or they can sign up for direct-response style offers (e.g sign up for Netflix), and receive currency for it.
  • The offer/survey provider receives a fee from the supplier, as high as $50+ for a credit card application or as low as $3 for a survey, takes a 10-20% fee, and remits the rest to the site
  • Advantages:  user doesn’t directly pay, so it opens up audience to less banked people or those who have more money than time
  • Disadvantages: users quickly find ways to game the system, some users sign up for offers solely for the cash, not because they have any interest in the advertiser, plus a subset of the offers are quite misleading.   Surveys often don’t have enough supply for all of the publishers
  • Survey Suppliers – Peanut Labs and new OfferPal service
  • Offer Suppliers – many, including Super Rewards, OfferPal, Gambit, CPA Storm, Ad Parlor, etc.

10-15%: Mobile/Premium SMS  Boku

  • More popular in Europe, but now growing in the US, payment by mobile phone through premium SMS is a convenient way for less banked users to use their phone to pay for offline goods, especially now that most providers have wide US coverage and now that the kinks have been worked out across carriers
  • Advantages:  convenient since a phone is always with you, great for younger users with no credit cards, and recurring transaction capability is arriving
  • Disadvantages:  50% transaction fees in the US, plus still have some friendly fraud issues when parents see the bill.
  • Suppliers – Zong, Boku, Allopass

10-15%: Retail PrePaid Cards  Card

  • Seems like an old school approach (why buy virtual things at physical retailers?), but the rapid growth of the prepaid card market in the US continues as more retailer distribution takes place and as users and publishers start to get used to the method.
  • Advantages: available at tens of thousands of stores through good old fashion cash, is great for gifting from from friends and relatives (holiday season is soon), and has less friendly fraud issues since it’s a set amount of currency
  • Disadvantages: high transaction costs (25-55%), too many cards for limited shelf space, inability to do recurring transactions, can get kicked off shelf due to slow sales, and hard to roll out retailer by retailer
  • Suppliers – Incomm, GMG (Meez’s partner)

2-5%: Other:  Cash in Mail, Bill to Home Phone, Rixty, etc

  • There are numerous other methods, including the humorous “Cash in Mail” method which make up a small percentage of remaining revenue, all with their own strengths and weaknesses

Again, this breakdown is different, depending on a site’s demographic.  A European-focused site like Sulake‘s Habbo Hotel will get the majority of its revenue from Mobile, while a tween-girl game like Nexon’s Maple Story drives revenue primarily from prepaid cards, and a savvy social media publisher like Zynga may have much higher Offer revenue.

What’s key here is that the overall virtual goods market is surging in the US, that we’re all collectively addressing the payment method issue through a variety of new approaches & products, but that there are still a number of new methods coming to accelerate the market even farther.

Best of all, it keeps changing, keeping consultants like me employed since last year’s methods are not as effective as current ones.

Posted by Ted • Monday, October 5, 2009 .