Nokia bets on mobile payments with Obopay investment

Nokia today announced a hefty investment in Obopay, a California-based startup bringing mobile payments to the developing world. The world’s largest, albeit struggling, handset maker is hoping to get a stake in the mobile financial services market – if not through its handset business then through the technology itself.

Nokia didn’t disclose the amount of the investment, but Obopay made a regulatory filing earlier this month for the sale of up to $70 million in preferred stock. The filing also stated that Teppo Paavolo, Nokia’s head of corporate business development, will get a seat on Obopay’s board. Nokia’s investment builds on the $69 million Obopay has already raised, primarily from venture capital firms, as well as $7 million from Qualcomm, which acquired mobile banking company Firethorn in 2007.

While Nokia has been to known to invest in a lot of companies, the size of the investment and buzz around mobile financial services suggests Nokia is making moves in banking to stop itself from being disintermediated, said Nick Holland, Aite Group senior analyst. With mobile payments, the handset becomes irrelevant as all transactions are done over SMS. If Nokia can’t dominate the market in that respect, they want to make sure they have a stake in a company who can, he said.

To date, most mobile banking services still replicate or complement the online experience, but analysts are bullish on the prospects for the market, especially in emerging and unbanked markets. As mobile financial services move from mobile banking to mobile payments and eventually to near-field communications (NFC), the ability to make a payment with the swipe of a phone, a territorial battle is emerging, according Holland. Financial institutions, mobile operators, card networks and vendors are all eager to quickly move into mobile financial services, especially in developing markets where the case has already been proven, he said.

“The rationale is very different in developing markets where there really are no alternatives,” Holland said. “There are no ATMs, no banks. It’s just a network of cash in and cash out, and the mobile device is the mechanism for that, so it makes sense now. In the developing markets, people are still highly reliant on cash.”