Mobile operator O2 has announced it is increasing pay-out rates to merchants, in order to help drive adoption of mobile billing.

Mobile billing enables web users to purchase digital content, such as apps and music, without having to register their credit card details. Instead, the cost of the purchase is automatically added to their monthly phone bill.

O2 said that its new “Charge to Mobile” service, launching later this year, will support higher price points and provide merchants with the ability to provide refunds and credits to O2 customers.

“This is a market where the key pieces of the jigsaw are starting to come together. Where mobile billing has been supported as an additional payment option, we have recently seen examples of merchant revenue increasing by over 200 percent,” said Danny Barclay, head of interactive at O2 Media, in a blog post.

“We foresee further examples of this type of increase, particularly as Internet usage through the mobile phone becomes more prevalent and we expect more and more merchants to take advantage of mobile billing in order to commercialise their goods and services.”

The news was welcomed by Ray Anderson, CEO of mobile web payments company Bango, which recently began providing mobile payments via Facebook. Speaking at CTIA's MobileCON event in San Diego, Anderson said the move could be “hugely influential”.

“Until recently, the costs of operator billing have been just a little too high for a low-margin business like selling music,” he said.

“We'll wait to see what the numbers look like, but with O2 driving costs down we may soon reach a tipping point where selling music through operator billing is commercially viable for the big online music retailers, and we'll see huge increases in sales volumes.”

Anderson added that operator billing is mandatory to reach demographic groups without credit cards, such as young consumers who traditionally buy music.

“When we're buying music on our phones, using operator billing, then we can say that the technology has really come of age,” he said.

Mobile billing is supported on all of the main UK mobile networks, with a common framework called ‘Payforit’ used to make it simple for merchants to incorporate mobile billing as a payment mechanism, and to give customers a standardised, secure and trusted purchase experience across all merchant sites.

Google, Facebook and Microsoft have all announced plans to roll out mobile billing, suggesting that online transactions charged to the mobile are likely to increase exponentially in the next few years.