Mobile meets cash: PayNearMe's high-tech approach to low-tech payments
The recession drove millions to rely more on cash for household finances, but years after the economy began to recover, it’s become clear that some still prefer to pay at least some of their bills in cash — creating opportunities and challenges for key players in the niche.
One success story is Sunnyvale, Calif.-based PayNearMe, which has seen steady growth since launching in the economic doldrums of 2009 with its business model enabling consumers to pay bills in cash through a network of 27,000 retail outlets like CVS and 7-Eleven. PayNearMe said its total bill payments volume soared to $1.2 billion this year.
A more troubled example is TIO Networks, which specializes in kiosk-based bill payment services for 14 million unbanked and underbanked customers. PayPal bought TIO this year to eventually give consumers who typically pay bills in cash the ability to transfer those funds into a digital network, but the plan didn’t get far.
PayPal closed the $238 million deal in July, and a few months later it suspended TIO’s services after discovering a security glitch that exposed the data of up to 1.6 million customers. PayPal had made no overt moves to integrate TIO into its network, and TIO remained offline through the final quarter of 2017 while PayPal worked to fix its problems.
PayNearMe declined to comment on any direct fallout from Vancouver, Canada-based TIO’s shutdown, noting that the two companies’ business models differ significantly.
“We were loose competitors, but where TIO provides a solution to route payments to various billers, PayNearMe aims to be one of the payment options billers offer customers, like a merchant acquirer for cash,” said Mike Kaplan, senior vice president and general manager of PayNearMe.
Growing consumer demand for immediate settlement of bills—versus the one to three days required for payments to clear on most online biller sites— inspired a decision last year by PayNearMe’s parent company, Handle Financial, to acquire Prism Money, a money management app that targets tech-savvy millennials with tools to help manage and pay bills quickly.
“One of the common themes between PayNearMe and Prism is that most people using our services struggle with budgeting—these are not people who ever balanced a checkbook—and our products solve the need to simplify and speed up bill payments,” Kaplan said.
Data about the cash bill-pay sector is fragmented and hard to measure. Aite Group’s latest research, gathered from an online consumer survey in 2016, suggests consumers’ one-time bill payment volume totaled $2.7 trillion, with the bulk flowing via ACH for one-time payments at biller’s online websites.
PayNearMe estimates about 28% of the U.S. population is paying at least some of their major bills such as utilities, rent or car payments in cash.
But consumers’ behavior around paying bills is often fluid and millennials put a high priority on paying bills immediately, which sometimes means with cash, Kaplan said.
“There’s a set of consumers who most always wants to pay bills in cash, but other groups of customers who pay bills in cash only sometimes, and some who do both, depending on their need for convenience and speed,” Kaplan said.
The enterprise is working to connect aspects of PayNearMe and Prism so consumers who use one service can more easily access the other.
“We plan to link 11,000 billers on Prism to PayNearMe’s cash bill pay functionality, which will expand options and flexibility for Prism customers,” said Richard Kang, a former Green Dot Corp. executive who has led Handle Financial’s consumer channel through Prism since early this year.
The crossover between cash-loving consumers and those who use an app to manage their budgets may not be huge, but Kang said it’s significant enough to warrant building direct connections between PayNearMe and Prism.
“Research shows that millennials pay about 4% of their bills in cash, and we see benefits in expanding PayNearMe as a funding mechanism for millennials using Prism,” Kang said.
The revenue streams and fee structures for PayNearMe and Prism are quite different. Consumers using PayNearMe usually pay nothing for on-time payments or a fee ranging for 99 cents up to about $4.99 for certain expedited services. Billers sometimes absorb the fee and PayNearMe and the retailers hosting the walk-in service take a cut of fees, the company said.
Prism is much smaller, and its revenue model is more complex, Kang explained. Prism earns revenue by converting a portion of the consumer bill payments it handles into credit transactions, generating interchange.
This year the company also introduced Prism Exclusive, a program enabling consumers to fund their various bill payments with any tender type for a fee. One example is the ability to use a prepaid or corporate gift card to pay a bill, Kang said.
“Prism addresses a fundamental shift in the way millennials pay bills, by incorporating mobile technology [and] real-time information, bringing control and flexibility over what funds customers can use to make payments,” he said.
Prism also has money transmitter licenses in all the jurisdictions that require them, increasing its range of options for paying bills on behalf of consumers and managing risk, Kang said.
Prism’s app is free for consumers, and observers note it faces hurdles in gaining adoption because of the plethora of competing bill payment services from banks and third-party money management apps.
Kang said the app is steadily gaining traction, without disclosing numbers.
When signing up, customers provide the usernames and passwords they use for online biller sites, and Prism provides a display of when all bills are due through a dashboard, with reminders and budgeting tools. Users have the option to also provide the sign-on credentials to their bank account to optimize financial management.
Despite reports of consumers’ growing wariness about protecting account credentials, most Prism customers do provide their bank account details, Kang said.
“We build a trust relationship with customers so they’re willing to share bank account credentials to get the richest experience from the app,” he said.
The next phase for Prism will be establishing scale by advertising on Facebook, Google and within app stores.
“This year was all about getting our business model right, and now we’re getting the company into position to scale and grow,” Kang said.