By Patti Murphy
Here's an ironic case of cause and effect: checks have become so embedded in retail payments that widespread mobile payment adoption is a certainty - according to a May 2012 Aite Group LLC survey of payment acceptance executives. Asked if they agreed mobile payments were a "great" business opportunity, three out of four said they completely or mostly agreed; 16 percent were on the fence.
It's baffling that 9 percent of those surveyed disagreed with the statement. After all, the underlying technologies - remote deposit capture (RDC), smart phones and prepaid cards - are each experiencing extraordinary growth, and several companies are coming to market with products and services that pull the three together.
Even banks are angling for a piece of this market. "We're seeing a lot of banks that are interested in learning how to serve this market," said Terri Ferrise, Vice President of Sales at Cachet Financial Solutions Inc., a firm that specializes in RDC solutions.
Consumer adoption of prepaid cards is skyrocketing. According to Mercator Advisory Group, loads onto prepaid cards are growing at a rate of 42 percent a year. In 2011, U.S. consumers loaded $57 billion on network-branded prepaid debit cards, according to Mercator.
Some of this growth is from low- to moderate-income people who have traded in checking accounts for prepaid debit cards. The so-called millennial generation is also driving the adoption curve. Until now, prepaid cards have not seemed an ideal replacement for bank accounts, however, because most people still receive checks, even if only once in a while. That's where RDC technologies come into play.
U.S. consumers will write and receive 7.4 billion checks this year valued at $5.7 trillion. Checks given as gifts between family members and friends, checks for private sales (for example, used autos and recreational vehicles) and checks written to pay for professional services are just some of the 20-plus reasons people still write and need to cash checks, according to Drew Edwards, Founder and Chief Executive Officer of Chexar Networks Inc. Plus, at least 40 million working adults have no access to direct deposit of their employment income.
Based in Atlanta, Chexar supports some of the largest check cashing chains and other nonbanks with real-time check review and risk management. Chexar uses a combination of remote capture technologies, sophisticated databases (from its own historical information to insights culled from social media websites) and rules engines to support real-time check review and risk management.
The company's clients include some of the largest nonbanks, as well as financial institutions seeking inexpensive ways to serve the unbanked and underbanked.
Chexar built and operates Spyke, The Good Funds Network, which makes it possible for any consumer to cash any check and have good funds posted to a prepaid debit card with a simple tap on a smart phone.
There's no cost to customers willing to wait a few days for access to the cash; immediate good funds can be posted to prepaid cards for a fee.
"Basically, we're making three-day loans," Edwards said. Spyke devised a Portable Personal Pricing formula that provides a Spyke Score for each individual. The more data Spyke collects on customers, the higher their Spyke Scores and the less they pay for immediate good funds. "We get to know our customers real well," Edwards added.
Chexar has made several strategic acquisitions recently in support of Spyke, including the purchase of DemystData, which collects and analyzes online and social data.
When I asked Edwards about that acquisition, he said, "There's a horde of information out there that everyone has access to; they just need to know how to decode it. It's cheap, and it's not credit data." For example, if someone writes a status update on Facebook about quitting his or her job, that is factored into the individual's Spyke Score.
"The real potential is for a PayPal-like direct consumer play," Edwards said. This is not necessarily to the exclusion of financial institutions and prepaid companies, but Edwards said he does want Spyke to become part of the modern vernacular, as in, Hey Honey, I'll be right there, as soon as I Spyke my check and pay a few bills. (The name is catchy, but while writing this column, I found myself transposing letters and writing Skype instead.)
Regions Financial Corp., based in Birmingham, Ala., has been using Chexar's network for about a year to reach the 30 percent of bank customers who also use alternative financial services providers such as check cashers. Called Regions Now, the product is more than just a prepaid debit card or check cashing service; it also supports online access, money transfers and electronic bill payment services.
According to John Owen, Regions Senior Executive Vice President and Head of Lines of Business, about half of Regions Now cardholders are new to the bank, and about one in 10 graduate up to traditional checking accounts.
Regions also offers walk-in check cashing for its customers and noncustomers alike through a network of 1,700 branches in 16 states. It also makes ample use of ATMs and other self-service devices that make it cheaper and easier to handle checks.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at firstname.lastname@example.org.
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