A startup’s plan to bring cash-focused families into the digital mainstream
As the pandemic accelerates a broad business shift away from cash payments, Pablo Martinez recalls hearing how his Puerto Rican father and Guatemalan mother struggled for years to enter the U.S. banking system.
About 30% of families operate primarily in cash, and they’ll still do so after the pandemic, predicts Martinez, 25, marketing leader at Pay Theory.
The Cincinnati startup launched last year, aiming to bridge the cash-acceptance gap that exists at schools, day care and health care providers.
"Digital technology is moving forward fast, but it's having a negative effect on certain segments of the population, including families who pay for school, day care and enrichment activities in cash," Martinez said.
Pay Theory wants to help schools and other youth organizations align their various payment-acceptance systems on a new platform built for both cash and cashless payments.
The firm recently started a beta test of its platform at an undisclosed Ohio school that has multiple payments vendors, with plans to roll it out more widely next year.
“We want to give schools a way to connect to our platform to streamline all their payments, while bringing digital and cash payments together,” Martinez said.
The company has been operating in development mode for about a year with private financing. Co-founder and CEO Brad Hoeweler previously founded and ran Skipjack, an early internet payment gateway that Vantiv (now WorldPay) acquired in 2009. Next he founded fintech firm Argo Labs, which is backing Pay Theory.
With a total of nine employees, Pay Theory is still in the “pre-seed” phase and plans to spend the next several months testing and refining its platform.
Through a partnership with Finix, a San Francisco-based fintech payments processor, Pay Theory will enable schools to integrate various payment methods on its platform.
Another partnership Pay Theory established with Incomm’s VanillaDirect network enables families to make cash payments to participating schools or organizations at 45,000 U.S. retailers.
The company hopes to run a beta test of the platform for six months with about a dozen schools, Martinez said.
“When we talk to school treasurers, we hear about big challenges they have handling a majority of routine payments manually, and other problems managing risk and liability around the many cash payments they receive from families,” he said.
The Pay Theory team recognizes that the nation’s school payments system is not going to modernize overnight, and the startup is developing an advisory board of school district administrators to guide the company.
“It's early stages, but we’re working on a product road map that will unfold over the next several years,” Martinez said.
Pay Theory isn’t alone in eyeing opportunities to improve U.S. public schools' payments, which typically involve a fragmented combination of vendors with little standardization between school districts and within states.
ClassWallet, based in Hollywood, Fla., this year has seen strong growth as several states including Idaho and Utah adopted its solution to streamline outgoing payments to teachers, maintenance crews and parents who receive state aid, including for remote learning during the pandemic.
Other payment processors have strong links to schools — including FIS, which played a key role in developing an electronic pandemic benefits card for needy families receiving cash to compensate for free and reduced-price school lunches no longer available to kids required to learn remotely.
Martinez expects that even after the pandemic abates, families with school-age children will be coping with the economic fallout for years to come.
"We've seen schools pushing for cashless solutions, but that's not going to be practical for a lot of people for a long time," he said.