Brilliant mobile payment startup raises $8 million but faces many unknowns
uBank, a mobile payment startup launched in late 2011, announced earlier this week an $8 million capital injection – its first round of funding – from Runa Capital, a Moscow-based venture fund that operates internationally. uBank’s valuation has not been disclosed, but its CMO Evgeniy Kozlov told East-West Digital News that the founders have kept a majority stake.
The startup has developed an app that enables mobile and PC users to create a personal uBank account and transfer money or pay for about 1,500 different services – including mobile, Internet and TV bills as well as online coupons, e-books, utilities and taxi services – from their bank account, using their bank card information.
uBank accounts can also be replenished with cash through the outlet networks of Euroset and Svyaznoy, two leading mobile device retailers. The startup is also in discussions with virtual currency operators to provide users with additional options.
uBank launched its service this past November when Samsung and Fly – two leaders on Russia’s smartphone market – began embedding the uBank app in their devices.
“Based on sales forecasts from these manufacturers, we expect to have around 15 million apps pre-installed by the end of 2013,” Kozlov said. “This does not take into account potential agreements with other device makers and downloads from application stores,” he added.
uBank claims its app has been dowloaded more than 250,000 times from Google and Apple’s app stores since December.
The company is planning to add new features, from paying for bills in cafés or restaurants to peep-to-peer money loans. It is also developing apps for the BlackBerry 10 and Windows Phone.
Fast growing market, harsh competition
The future will determine how long and how far uBank – which says it took some inspiration from PayPal – will continue this brilliant trajectory.
The first unknown lies in the startup’s capacity to cope with competition. Since 2010, several important players have launched mobile payment platforms – from major mobile operators Megafon, MTS, Tele2 and Vimpelcom (Beeline), to wireless Internet provider Scartel (Yota), to such specialized operators as Mobi Dengi and InPlat.
These platforms offer essentially the same service – mobile payments for a diverse range of services with account replenishement from several sources – usually with a commission rate of 4% to 8%.
So far, uBank’s users have been able to use the service for free, but there is no certainty that the startup will keep this competitive advantage for a long time. “We are still experimenting with the business model,” Kozlov conceded, “so a revision of the current commission-free policy cannot be ruled out.”
The startup’s international strategy also remains to be clarified. While Runa stated that its investment will be used for development “in Russia, the CIS, and further global expansion,” Kotlov could not elaborate much on these aspects. “As a globally connected international fund, Runa will help us with international development, but it’s too early to say anything precise,” he told EWDN.
Russia’s mobile payment market, which amounted to just $100 milllion in 2011, could reach $1.3 billion by 2017, according to J’son & Partners, while Gartner estimates the global market could exceed $600 billion by 2016.