Jack Dorsey just raised $100 million at a valuation of $1 billion for his new startup, Square, which allows smart phones to act as merchant credit card swipers. Western Union charges a pretty dime to accept cash and move it elsewhere. Green Dot’s reload network accounts for roughly one third of its revenues. Tio Networks accepts walk-in bill payments at over 50,000 locations. PayNearMe has figured out how to accept cash at 7Elevens for complex transactions such as loan payments, remittances, and bus tickets. These companies all solve for the “money in” problem.
A consequence of being unbanked or underbanked is that there are real challenges to get access to money. It doesn’t all aggregate into your account. Square allows anyone with a smart phone to access credit cards. Green Dot and the others give people ways to transfer cash into an electronic form.
And this is big business: Aite released a paper projecting cash will be important for another 200 years (based on a bumpy erosion averaging 4% per year and starting at over $1 trillion today).
But it’s still incredibly inefficient. All the above companies charge a pretty penny, as much as $5, to transfer your greenbacks into digital currency. I think for mobile payments – or prepaid accounts for that matter – to really take off, we need to solve for the “money in” problem.
Money In needs to become cheap and ubiquitous if we are to bring the underbanked into the mainstream; that is, provide access to the range of financial products and at the relatively low cost that the “optimally banked” enjoy. So, we’re actively looking for companies that solve for Money In.
great piece. i actually think one critical solution is mandated direct deposit – e.g. gov’t phasing out checks by 2013. what about corporate america? what about small biz? I think we need to be moving people to electronic transactions. Cash isn’t going away, but starting with cash – the “cash in” problem – is the most expensive part of the problem. I think if we get folks digital to start with, they will need less cash, and that having it be a little bit expensive to get cash out is ok b/c we should want people to keep it digital. The more people shifting from cash to digital, the more reason their friends and associates have to also make the shift.
I don’t think it makes sense to lump PayNearMe transactions in with GPR reloads, which are typically priced at $5 to the consumer, and eventually result in interchange paid by the merchant.
In many cases — typically where the product or service generates gross margin — PayNearMe fees are absorbed by the merchant and are free to the consumer (e.g. purchasing Greyhound Bus tickets or Amazon.com gift codes through our system at 7-Eleven stores). In other cases, such as repaying a loan, our fees are materially less expensive — and our transactions are quicker and more convenient — than alternatives. Loan repayments through PayNearMe typically cost $2.99 and result in immediate credit, significantly less expensive than most expedited walk-up payments. We’re able to provide services this inexpensively because we use technology to replace manual labor, and we leverage the efficiency of the existing cash handling networks and point-of-sale infrastructure at our retail partners.
When borrowers compare our $2.99 fee to the cost of traveling out of their neighborhood to visit a fee-less repayment location (in the event one exists), not to mention the value of their time, PayNearMe is quite attractive.
BTW, with the passage of Durbin, merchants are no longer subsidizing “free” checking and debit cards on behalf of consumers, and float is not particularly valuable in the current era of low interest rates. As a result, banked consumers will soon be exposed to the true cost of payments. We believe this will make PayNearMe’s economics even attractive to more consumers.
Visa charges 75 cents for the reverse credit transaction. 7-Eleven makes $3.25 on each transaction charging $4 . That same 7-Eleven store will load up to $750 on a MoneyNetwork card for $2.
If Visa ever gets ATM reloading which they announced several years ago that fee could come down considerably.
One thing overlooked with these load services is that they have limits making higher dollar amount loads more costly. GreenDot allows $500 for $5 except where Walmart does $1,100 for $4.50.
Western Union $5 for $950 etc so the dynamic changes for each.