SmartPay, China, and advantage of economic backwardness

Shanghai-based company, SmartPay, enables people to make payments from their bank accounts using the cell phone. This is a company we’ve heard Silicon Valley VCs talking about.

So no surprise that it has just raised about $7.8 million in its second round of funding, and that it includes Silicon Valley’s Accel Partners among its backers, according to today’s VentureWire (sub req). And RRE Ventures, a New York-based firm, invested even though the firm has never done a deal in China before.

Why? Because SmartPay apparently has a large, growing base of customers (more than half a million), and because China lacks a payments infrastructure:

“In China you do not yet have an easy mechanism to provide for electronic payment. You also don’t have what we’ve had historically – a paper-based check writing system,” said RRE’s Jim Robinson.

This is called the advantage of economic backwardness. China doesn’t have the baggage we have with older forms of payments, so they can leapfrog ahead of us when they do start investing in new technologies.

And gee that is happening. As mentioned in our recent story (free registration) on China mania, Shanghai-based 99Bill also just raised a first round of funding — led by Silicon Valley’s Doll Capital Management. Alarm:clock has more on 99Bill.

Udpate: One real example of this from Seen Not Heard