Two startups are planning to provide alternative funds-transfer methods using payment channels familiar to consumers, but without using dedicated agent locations as established players do.

RegaloCard LLC and Privier Inc. do not appear to be immediate threats to MoneyGram International Inc. and Western Union Co., but they could help move the market in a new direction.

Privier has developed software that enables funds-transfer recipients to withdraw cash from any participating automated teller machine. And RegaloCard has developed a free mobile, card-based service that lets consumers in Canada and the U.S. send funds to Central America.

"We are at a tipping point in the market," said Gwenn Bezard, research director at Aite Group LLC in Boston. "Moving forward, we are going to see a lot more channels and competition."

Privier plans to launch its service in 2011. The Charlotte, N.C., company wants to build an ATM network for person-to-person funds transfers in the U.S., Puerto Rico and the Virgin Islands. All debit cardholders would be able to use the service.

Privier also is in discussions with electronic funds transfer networks. It is attempting to fill a void, said Charles Polanco, its chairman and chief executive. Most financial institutions do not offer their customers basic person-to-person payment services, Polanco said. "This forces customers that need to make urgent money transfers to go outside of banks and use informal channels such as PayPal, Western Union and MoneyGram," he said.

Privier is working with an independent sales organization and two ATM manufacturers to roll out the service. (Polanco declined to name the companies.) It wants to add small financial institutions and credit unions to the network through ISOs. Ultimately it would like to add large banks to the mix.

Privier has several features that might help separate it from the name brands.

Under its fee model, the ATM operator would charge senders a flat $7.50 for transfers up to the $400 limit. Western Union and MoneyGram charge between $24 and $27 for a $400 transfer within the U.S.

The recipient would have the option to withdraw the money from several different participating network ATMs deployed at such common off-premise sites as drugstores and supermarkets, which, unlike many funds-transfer agent locations, often operate around the clock.

To send cash, a consumer would use his debit card and PIN to access an ATM and press the "send cash" button on the screen to start the process. The sender then enters the recipient's ZIP code to locate the nearest participating ATMs. The sender then enters the amount to be sent. The ATM operator ultimately deducts the funds from the sender's checking account.

The sender receives a receipt with what Privier calls a money-transfer control number. The receipt also lists several locations where the recipient can withdraw cash. The sender decides how the recipient receives the 16-digit code, Polanco said. "The sender will provide the recipient with the number through a phone call, text message, e-mail, or whatever channel he or she decides to use," he said.

Polanco is not concerned with whether a third party could intercept the message. "How would the hacker know that a certain text or e-mail has a code that would enable them to collect cash and where?" he said.

If a hacker did manage to withdraw money using a debit card, the funds would be linked to that particular card, Polanco said.

After using a debit card to access the ATM and pressing the machine's "pickup cash" button, the recipient enters the 16-digit funds-transfer code. The recipient would see the transfer amount displayed and make a withdrawal.

RegaloCard is attacking the funds-transfer market differently.

Under RegaloCard's system, senders purchase a merchant's prepaid card and scratch off an area on the back of it to reveal a PIN. The buyer then calls a toll-free number and enters the PIN and the recipient's mobile-phone number. The recipient receives an instant text message that contains a redemption PIN to use to access the funds for use at the specified retailer. To complete a transaction, the cashier enters the recipient's mobile-phone number into a dedicated terminal. The recipient then enters the redemption PIN to access the funds for payment.

Consumers may send as little as $10, but RegaloCard may reduce the minimum to $5. RegaloCard receives a percentage of the funds loaded into the card accounts from each participating retailer.

Gregory Keough, RegaloCard's chairman and CEO, said he believes the Miami company has created a market for a funds-transfer option that previously was unavailable: the "micro-money transfer."

"We're fundamentally changing a very large business in money transfers, but at the end of the day our business concept is simple and easy to understand," Keough said.

Consumers may use the funds only at specific merchant locations, but Keough said he does not view that as a drawback, since many transfers today are spent at specific merchants.

Last year, consumers sent $8 billion using funds-transfer service providers to El Salvador and Guatemala, Keough said. "About 80% of those transfers go toward everyday things like groceries, medicine and even electronics," he said.

On Monday, RegaloCard announced a distribution partnership with the money-transfer marketing company Dinero Ahora, making RegaloCard accessible from Dinero Ahora's 1,200 U.S. locations.

MoneyGram is monitoring these developments.

"At this point, we don't know if these products will become mainstream or if the consumer is still focused on the traditional money transfers" conducted at agent locations, said Rich Meszaros, the Minneapolis company's vice president of global product management. Western Union did not respond to requests for comment.

MoneyGram has dabbled overseas with different channels such as mobile and an ATM service similar to Privier's, but it remains committed to its core business.

"When we look at the marketplace, the majority of our consumers are looking for a cash-based transaction" as opposed to RegaloCard, "and that's really where our global network allows consumers to walk into an agent location," Meszaros said.

MoneyGram has more than 200,000 agent locations worldwide. It sets its pricing model based on the "entire value proposition to the consumer," Meszaros said. It considers such factors as the availability of the funds transfer worldwide and how easy it is for the receiver to secure the funds, he said.

Despite more wallet-friendly services from RegaloCard and Privier, pricing "isn't necessarily an important decision factor as one would think," said Red Gillen, a senior analyst with Celent. "What's even more important is the trust factor."

MoneyGram and Western Union are brands that consumers readily recognize, Gillen said. "The low-cost approach may not be the winning approach," he said.

Bezard said mobile funds-transfer services will become mainstream in the near future. "The time has come for technology disruption in money transfers, and we've been talking about it for the past 10 years," he said.

Gillen said that technology disruption might not necessarily come from MoneyGram and Western Union, which may be more resistant to new technologies out of fear of the threat they may post to agent networks that have been in place for decades.

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