In its quest to rise above the fray in alternative payments, Obopay Inc. has identified another financial-services niche ripe for modernization: business-to-consumer payments.

The Redwood City, Calif.-based firm on March 28 unveiled a service called Obopay Disbursements that enables companies to distribute such funds as insurance payouts and rebates directly to consumers' bank, debit card or branded prepaid card accounts.

Obopay sees opportunity in persuading corporations that rely heavily on paper checks for disbursements to customers to electronify those payments, David Schwartz, the company’s vice president of product and corporate marketing, tells PaymentsSource.

In addition to checks, many companies already use prepaid cards for such disbursements, and some send funds directly to consumers' bank accounts via automated clearinghouse channels.

But Obopay says the element of its service enabling companies to route payments instantly to consumers' debit card accounts is unusual. It harnesses Obopay's existing payment service for banks that support such PIN-debit networks as First Data Corp.'s Star, Discover Financial Service's Pulse and Fidelity National Information Services' NYCE that also power Obopay’s person-to-person payment offering for banks (see story).

Giving consumers the option to choose from among various payment channels is an advantage in the disbursement arena, Schwartz contends.

"Consumers usually prefer getting paid directly to their debit card account when they're given a choice because it's fastest, and when you give out prepaid cards it generates a lot of questions about where to use it and what to do about unspent funds left on the cards, which slows things down for companies," he says.

The firm has tested the service since the beginning of the year with a large, undisclosed corporation at a field office and at its headquarters location, Schwartz says.

A typical scenario involves an insurance company representative traveling to visit a customer at a field location, carrying a smartphone equipped with Obopay's app. After assessing damage, the agent asks the consumer to choose among the payment options.

Using a mobile card-swipe attachment and a smartphone app, the agent can send the funds instantly to a debit card account by swiping the customer's card, set up an ACH payment that will clear within a day, or issue and activate a prepaid card loaded with the funds, Schwartz says.

Corporations pay a fee for each transaction that varies based on use, he says.

The service cuts disbursement costs "significantly" by eliminating paper-based payments, which can cost $6 to $15 each to process, Schwartz suggests.

Corporate disbursements, which account for a splinter of the total payments pie, is an area that has not seen much action from alternative payments, analysts say.

Industry data suggest U.S. business-to-consumer payments account for about 1% of all payments, about the same portion that belong to person-to-person payments, Beth Robertson, Javelin Strategy & Research's director of payments research, tells PaymentsSource.

"It's not a large area, but it has not yet seen a lot of electronification," Robertson says.

Removing costly checks from corporate disbursements could be a boon to companies, Gwenn Bézard, research director at Aite Group, tells PaymentsSource.

"Obopay continues to pursue various niches and this one has some promise," he says.

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