While many payments companies feverishly pursue mobile technology for cashless transactions, consumers aren't giving up their bills and coins anytime soon. PayPal Inc., in a recent agreement with MoneyGram International Inc., is demonstrating once again that digital payment systems aren't fighting cash — they are fueled by it.

The agreement will provide PayPal's 117 million active users a way to eventually deposit and withdraw cash from their PayPal accounts at MoneyGram's 284,000 locations worldwide. PayPal, a unit of eBay Inc., and MoneyGram will first pilot the service early next year in the U.S.

"Cash is a very big part and a growing part of our payments landscape," says Carl Scheible, MoneyGram's executive vice president of Europe, Africa and emerging channels.

In the United Kingdom, 50% of all payments are cash-based, Scheible says. Plus many payments in the developing world also rely on cash.

"Cash is a long ways from being obsolete; it has a role and it's here to stay," Scheible says. "There's a huge opportunity with a lot of cash-based consumers, whether they're unbanked, underserved or just have a cash preference."

The MoneyGram partnership improves PayPal's ability to serve people who may not have bank accounts or credit cards but still have mobile phones and Internet access, says Dan Schatt, head of financial innovation with PayPal. These consumers would shop online if they could swap their cash for a form of payment accepted online.

"It's the fastest way to take $20 and turn it into 20 iTunes songs," Schatt says. "This gives people with a lot of cash the opportunity to purchase online."

This agreement comes after a partnership between PayPal and CoinStar Inc. in May, allowing consumers to deposit coins straight into their PayPal account through CoinStar kiosks.

PayPal account holders were spending about $150 online soon after depositing $100 worth of coins at CoinStar kiosks with the extra $50 purchased on the customer's credit or debit card, Schatt said at SourceMedia's Mobile Banking and Commerce Summit in June (SourceMedia publishes PaymentsSource).

PayPal also allows cash loads through Green Dot Corp.'s MoneyPak cards, which are sold in stores as a way to fund stored-value accounts.

With MoneyGram, a fee for both depositing and withdrawing cash will be administered, but the companies are not disclosing the price at this time. "It will be highly competitive and in some cases disruptive," says Schatt.

The service is initially designed as a way to give existing PayPal users more choices. The second phase of the roll out will be geared towards new acquisition, Scheible says.

"There's a desire from both companies to continually broaden consumers' choice in the way they access their funds," Scheible says. "It's a way to embrace and serve all payment channels."

The service "turns cash into commerce," adds Schatt.

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