Boku Gets $35 Million From Telefonica, NEA to Expand Service

Boku Inc., a service that lets consumers use mobile phones to make purchases, raised $35 million from Spain’s Telefonica SA (TEF) and other investors, helping the startup bolster its staff and continue expanding abroad.

Telefonica Digital, a unit of the Spanish phone company, joined venture firm New Enterprise Associates in leading the financing round, San Francisco-based Boku said today in a statement. Existing investors, including Andreessen Horowitz, Benchmark Capital and Index Ventures, also participated. Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.

Boku has developed a system that allows users to buy virtual items -- say, bonus points within a video game. Now it’s rolling out a product that lets consumers buy physical goods from any place that accepts MasterCard. The approach provides more flexibility than near-field communications, a technology that’s been slow to catch on because it requires phones to have a special chip and isn’t available at many retailers.

“There’s a great window to come up with a platform that delivers value to operators and customers while not waiting for NFC,” Ron Hirson, president of Boku, said in an interview.

Boku, which has now raised $75 million since it was founded in 2008, works with more than 250 mobile-network partners in 67 countries. The startup’s biggest competitor, Zong Inc., was purchased last year by EBay Inc.’s (EBAY) PayPal unit for $240 million. Until recently, the companies were mostly vying for buyers of digital and virtual goods, letting consumers purchase items in Facebook games and charge the payments to their phone bills.

Boku Accounts

That method doesn’t work for physical goods because carriers charge such a high fee that it wipes out the profit for merchant. With the new product, called Boku Accounts, the company relies on partnerships with carriers and provides the underlying technology for payments. Purchases are then made over MasterCard’s network, instead of the phone operator’s.

Carriers send their customers a prepaid MasterCard and NFC sticker for their phone, and all purchases come out of a single account that can be managed online. If NFC is available at a retailer, the system can rely on that to make the transaction, though Boku’s product works without it. By 2014, at least one in five smartphones globally will be able to use NFC for mobile- payment functions, according to Juniper Research.

“Boku has built a phenomenal business around online payments,” NEA partner Ravi Viswanathan, whose firm also backed Groupon Inc., said in the statement. “The next step is bringing mobile payments offline, and that’s what Boku Accounts accomplishes.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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