The opportunity is ripe for bill payment providers to facilitate payments via mobile phones. Yet it is still early in the game, and no correct formula of offerings has emerged. But BillingTree, a processor for collections agencies and payday lenders, believes prepaid cards will play a significant role in such programs because the alternative financial tool reaches millions of unbanked individuals in the United States.
Payday lenders are in the early stages of investigating how prepaid loyalty cards should fit into their overall mobile payment schemes, according to BillingTree President and Chief Executive Officer David Roberts. "Payday lenders need to find better ways to create value," he said. "They certainly provide a service, albeit not necessarily the most popular one. It's certainly something that 12 to 15 million Americans actually need to facilitate their daily lives."
Loyalty cards would allow lenders to incentivize customers to deposit loads onto the cards via smartphones. "For instance, they could use that card to pay their power bill or their cable bill," Roberts said. "And maybe their loyalty points earned can be applied to [other] purchases."
Additionally, the payday industry is facing regulatory actions to rein in the exorbitant interest rates that they charge, which average 322 percent on a $360 loan, according to Roberts. Loyalty cards can help lenders transition to "a more retail type product rather than a true banking entity, which I think has caused them quite a bit of consternation," he said.
Finally, unlike cash payments, electronic payments leave digital footprints. Loyalty cards would thus help lenders track their customers' financial behavior. Roberts noted that it would be helpful for a lender to know its customer had just opened a loan at a rival lender's shop down the street, for example.
Research conducted by BillingTree in March 2013 revealed that check writing in the collections market is twice as prevalent as in the overall economy. Liz Caracciolo, Vice President of Corporate Development at BillingTree, said that 30 percent of payments in the collections sector are made via check, while the national average is under 15 percent.
Incentivizing check writers to use mobile bill pay therefore represents a huge money saver for collections agencies and a new market opportunity for bill pay providers to convert check writers to electronic bill payers. In the product mix are emerging payment channels, such as text message payments, according to Caracciolo.
"Our study showed a little over 2 percent of agencies have implemented a text-to-pay solution," she said. "So when we talked about how many payments are getting through that channel, it's a small amount." But BillingTree projected that 20 percent of collection agencies will adopt a text-to-pay solution in 2013.
Another potential mobile payment scheme is to pay via quick response (QR) code to mobile app. Caracciolo characterized this method as an enrollment mechanism for recurring payments, with the QR code on the bill linking to a downloadable app that can be used to make future payments via mobile devices. "We still need to see where the consumer will benefit by registering," Caracciolo said.
One thing that has been neglected in this advance of new payment technologies is how to communicate a value proposition to consumers, she noted. There is a substantial comfort factor to overcome when people are in the routine of paying off the utility company in person, Roberts said, adding that to get someone to switch to a mobile solution, the service will have to be a significant improvement, which means real-time payments and a seamless customer experience.
"When you go to pay your utility bill in a mobile scenario, you want to know that the person who has got your account open, who turns your switch on and off, knows right away that you paid your bill," Roberts said.
Caracciolo agreed. "The communication piece is a bigger concern than the payment part," she said. 
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