Can a Venmo-like B2B service recapture underbanked merchants?
Taking a cue from his previous success in commercial cash checking services, Conext CEO Michael Casalini hopes a Venmo-style mobile app that supports a quick conversion of checks to digital money can attract small businesses.
Called Conext, the platform is designed to address the need for small businesses with $3 million to $5 million in annual sales to have a funding option that banks were no longer providing.
After the financial crisis in 2009, bank consolidation left out small business operators, making them more irrelevant, said Casalini, who previously operated Bridge Capital Solutions, a commercial check cashing company. "The small business persons wound up finding themselves in a class they had never been in before as underbanked or unbanked," Casalini said.
But it was becoming less practical for those small business owners to go to a commercial check cashing station and walk out with as much as $50,000 in cash. "You can't use that cash to pay bills, and it's a security issue," Casalini said. "Most of the time that money would end up back in the bank, and we're providing something that can bypass that."
Conext transfers funds in less than five minutes from a business owner's checks to a prepaid Visa card for one-day transfers of up to $50,000 to pay bills, and up to $100,000 for qualified cardholders.
The Conext platform operates as the accounts receivable and outgoing payments platform with no need for bank intervention or processes, or the use of wire, ACH or even current bank-supported faster payments systems.
"The whole concept is for a small business to operate as if it were on Zelle or Venmo, but those P2P services are for small-value transactions," Casalini said. "We move money just as fast, but it could be $50,000 or $100,000, something that was never available to them before."
Using VeriFund to help verify the checks being cashed, Conext underwrites the payments in transferring the money to the business owner's prepaid card through the mobile app on a smartphone.
Conext provides the payment platform for 58 different categories of businesses, mostly in trade services. "It works for any situation in which one business has to pay another, and these are companies that primarily don't accept credit cards," Casalini said. "They don't want to hassle with the contracts and fees, and may not even be interested in mobile POS. Primarily, it comes down to a payment by check from one business to another."
The business owner takes a photo of the paper check it has received from a customer and sends it to Conext through the mobile app for approval and distribution back to the prepaid account on the platform. The card is issued to the business' tax ID, allowing easier monitoring of receivables and payments statements for accountants.
The supplier or vendor receiving payments does not need to be on the Conext platform, as it would be similar to paying anyone else with a Visa card. However, if the vendor is a Conext user, the payment can be executed similar to a P2P service.
The Conext model resembles a consumer using a cash checking service or payday lender in that it is providing a way for business owners to have quicker access to their funds, said Sue Brown, director of prepaid advisory service at Mercator Advisory Group.
"They are absolutely in a great spot with this service because this is exactly where B2B is going" in the digital age, Brown said. "What is unique about this is that not all cash checkers out there will cash business checks."
The other factor working in Conext's favor is that it makes immediate decisions on converting the checks into digital money that can load on a prepaid card, Brown added. "That is very unique, but it does have limits on dollar amounts and maybe some provisional holdbacks," she said.
For a fee of 2 to 3 percent per transaction, the small business owner benefits in quickly having access to considerable sums of money, Casalini said. "If you were a concrete contractor and had a $300,000 job in progress, and the customer paid $100,000 of it upfront, you could get that $100,000 right away and maybe negotiate a lower price on $50,000 worth of supplies if you could pay in full right away," Casalini said.
A network for commercial cash checking has been in place, but the Conext network and check image loading through a mobile app are new features.
"The network is ready to go nationwide, and it's an education process now to show businesses another way to move money faster," Casalini said.