Transition is the normal state of affairs in the payments industry. If companies aren't expanding their retail footprints, reaching new vertical markets and innovating new products, something must be wrong. Squarely in that "change or stagnate" tradition, IPP of America Inc. made a significant transition when it acquired Softgate Systems in November 2009.
In business since 1993, IPP has focused on delivering electronic bill pay services to domestic and international unbanked consumers. But with the Softgate purchase, IPP expanded its offerings with a payment platform that integrates bill pay with phone, gift, loyalty and stored-value prepaid cards.
Ron Averett, President and Chief Executive Officer of IPP, noted three primary benefits of the acquisition. "From a retail perspective, it more than doubles our retail base," he said. "From a product perspective, we added three or four more products to our solution set. And strategically, instead of simply providing bill pay and serving as a bill pay player, it creates an integration platform where we can provide multiple products."
With Softgate in the fold, IPP's 8,500 retail partnerships across 43 states immediately expanded to over 14,000 endpoints, with 3,000 to 4,000 more to be added by 2011, Averett said.
Locations include neighborhood retailers, national chain stores and check cashing businesses, with the most touch points clustered in California, Texas, Florida, New York and New Jersey.
Averett said California and New York represent 55 to 60 percent of IPP's revenue, with significant room for growth on both coasts - areas where IPP expects to aggressively expand its retail base. "We actually think that those two states are going to continue to grow about as quickly as the rest of the country," he said.
IPP has fostered 1,500 biller relationships: a combination of wireless and landline providers and national and regional utility companies. Unbanked customers pay bills to these entities by using IPP's services at POS activation terminals, personal computers and self-service kiosks in retail locations.
Therefore, IPP has positioned its services in businesses that unbanked consumers typically frequent.
"A lot of our locations are in the appropriate neighborhoods where these people live," said Brenda Amaranat, Vice President of Marketing at IPP.
"Many of them are immigrants - new immigrants to the country. ... They do everything with cash, and we enable them to have financial flexibility."
Additionally, IPP has a presence in Central and South America through its partnership with iSend, a Watertown, Conn.-based international bill pay provider.
Through iSend, IPP has developed direct and indirect relationships with billers in 10 countries. "And through those biller connections, we help consumers or aid consumers in paying either their bills [or] friends' or relatives' bills in those countries," Averett said.
Although consumers who use IPP's services recognize the IPP brand, Averett admits that IPP does not have the same brand recognition of other bill pay providers, such as Western Union Co. and Moneygram International. That hadn't been IPP's focus; the Softgate acquisition, however, changes the equation.
"We would never rebrand ourselves from the retail perspective," Amarant said.
"Certainly from a corporate perspective with the acquisition, it makes sense [to] see how we want to reposition ourselves and how we want people to think about us now that we are a lot more than bill pay."
Averett characterized the electronic bill pay market of the mid-1990s as in its infancy. "You didn't nearly have the kind of connectivity to billers that they have today," he said. The speed of posting payments was also an issue back then.
"The key there is the more direct the biller relationship, the faster the payment post," Averett said. "Effectively, what has happened over the course of the last couple of years, as more of these real-time posting relationships have been formed, the price points have begun to change."
Averett called IPP's direct biller relationships integral to its profitability. Given the velocity of payments today, retailers can tier their pricing models to maximize revenue.
"It started with a price point for a retail walk-in bill pay at, say, $1.50," he said. "And, over the course of the last year, I think, most providers have created at least two, if not three price points, and technically $4 to $5 for a real-time post; $2 to $3 for a next-day post; and $1 to $1.50 for a next-day plus."
The scope of IPP's biller relationships is also of primary importance, especially in less developed bill pay environments outside the East and West Coasts. IPP is experiencing significant growth in the Midwest (Chicago and St. Louis) and the South (Atlanta).
"Billers are important in this [expansion]," Averett said. "And we would say they're critical to the business model.
"The better your coverage on a regional basis, or a national basis, the more important and the more attractive you are to the retailers that are looking to serve these consumers."
The established relationships with companies like Wachovia Corp., Metavante Corp. and Tio Networks Corp., and newer relationships with businesses like Yodlee Inc. and Tier Technologies Inc., create synergy for IPP and its partners.
Averett said Yodlee and Tier, which are online, Internet-based bill pay companies, already have relationships with billers.
"And the reason why they're interested in [IPP] is they are simply leveraging their current infrastructure to process and route more payments and create an additional revenue stream, so it's a win-win for both parties," he said.
Essentially, IPP achieves access to a particular biller's customer base. "And in some number of cases, those are real-time relationships, so the price point for us is higher," Averett added. "Not only is it a revenue stream for the company here, it's also potentially a revenue stream for the biller."
Averett joined IPP in 2007 and raised $20.5 million in recapitalization to buy out IPP's founder. Then Averett brought in new investors - Edison Venture Fund, CitiGroup Inc.'s Citi Alternative Investments and Hamilton Investment Partners LLC - and hired a new senior management team to implement its current direction.
Averett agrees that a foundation in bill pay positioned the company for its foray into the prepaid card sphere. Its partnerships with companies like Green Dot Corp., Blackstone, Emida Corp., Blackhawk Network and InComm extend IPP's national and global reach.
"And one of the reasons why we are a natural partner of theirs is because while they've done a really good job in penetrating their base with their particular solutions, bill pay is a complementary product that they have been interested in introducing into their locations," Averett said.
Conversely, since IPP's base is in retail bill pay, it is a natural extension for IPP to also offer prepaid products as well.
"Expanding our retail base and providing additional products is a combination of leverage points," Averett said. "More efficiency, more retail locations, more consumers and, hopefully, through the nature of the gateway platform that we've got, providing addition-al products will create more stickiness for us into those retail locations."
Historically, electronic bill pay has been a sticky solution. Retailers like the recurring revenue stream of repeat customers. But it is not the only service that keeps customers loyal. Averett pointed out that electronic remittance is another sticky product.
"But for the consumers that are doing that, they also have bills to pay," Averett said. "They've demonstrated that they operate or manage their financial business through cash. So extending that to pay their bills through cash is just a natural extension of the business that they do."
Prepaid options such as gift, loyalty and stored-value cards can improve customer retention, which gets back to the central importance to IPP of the Softgate acquisition.
"It's really an extension of our original strategy, which is serving the unbanked for our bill pay solution," Averett said. "In a limited fashion with bill pay, but with prepaid wireless, prepaid long distance and other solutions, we can be a bigger provider for the unbanked and underserved."
With upwards of 60 million unbanked and underbanked U.S. consumers (according to Federal Deposit Insurance Corp. data) and given the state of the economy, Averett and company have much work ahead of them in meeting the needs of customers in that growing consumer segment.
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