• by Mark Walsh  @markfwal, March 22, 2010

With the paid-content model coming back, Verizon Wireless has struck a deal with Danal Inc. to allow customers to buy digital goods online and charge them to their phone bills using only their mobile numbers.

Starting later this spring, Verizon's 92.1 million customers will be able to use Korean-based Danal's BilltoMobile service to spend up to $25 a month on items at online stores including game sites, social networks and virtual worlds.

Given Verizon's huge customer base, the initiative positions the carrier to compete more directly with the major credit card companies and big payment players like PayPal and Apple, as well as a bevy of payment startups. If subscribers grow accustomed to using their phone numbers for micropayments or impulse buys, then Verizon stands to benefit.

"Working with Danal will give our customers the opportunity to make direct online mobile payments with the most secure, feature-rich, convenient method available," said Ryan Hughes, Verizon's vice president of business developments, in the announcement Monday. Delivering on those promises will be key if Verizon is to convince customers to switch from using credit cards or other payment options for virtual goods.

Here's how the service works: a user clicks on the BilltoMobile button during checkout at a participating retail site and then enters their mobile number and billing ZIP code to authenticate. A text message is then sent to the consumer's mobile phone with a six-digit passcode. After the code is punched back into the site, the purchase is completed. Verizon says the entire process takes only 15 seconds and requires no pre-registration.

Another big question is what e-commerce partners are on board. Verizon and Danal have not yet disclosed any specific sites that would offer BilltoMobile, but it's clear from the types of outlets mentioned -- gaming sites and social networks -- that they are targeting the growing sale of virtual goods on Facebook and other sites.

A study by Inside Facebook last year predicted that this emerging market would swell to $1.6 billion from only about $500 million in 2008. Startups such as Zong, Boku and Obopay are already tapping into this burgeoning segment by letting people use their 10-digit mobile numbers to pay for virtual goods in social gaming.

Verizon entered into a partnership with Obopay in 2007, mainly to allow people to send money to each other via mobile phones. An Obopay spokesperson said its relationship with Verizon was unaffected by the new deal, since its service doesn't involve billing directly to wireless accounts like BilltoMobile.

With its $25 monthly spending cap and focus on the digital goods niche, Deepa Karthikeyan, a wireless analyst for market research firm Current Analysis, said Verizon's alliance with Danal will not immediately threaten credit cards or PayPal in mobile. But it should help Verizon against the other major carriers.

"This service offers Verizon Wireless a differentiator and helps it to better appeal to its users who are online shoppers and don't wish to deal with the hassles of entering their credit card information," she said.

Verizon also said BilltoMobile would provide merchant fees that are "significantly lower than traditional mobile billing rates" without providing further detail. But according to VentureBeat , the service will charge fees of less than 20% of the value of a transaction. Danal bought a controlling interest in U.S.-based BilltoMobile last month.