Phoenix Check Cashing Inc. has added prepaid cards and bill-payment capabilities to its payments offerings in an attempt to spur more use of its core service: biometric check cashing.
Phoenix's main service is designed to streamline paycheck cashing for the unbanked by letting them authenticate themselves with their fingerprints.
Jon Dorsey, Phoenix's chief executive, said the new services were developed to complement the Herndon, Va., company's check-cashing system.
"Our analysis is that all of these activities" — the prepaid card and the walk-in bill-payment system — "really start with that check-cashing transaction, because that's where the funds come from," Mr. Dorsey said in an interview last week.
Phoenix was founded in February by veterans of BioPay LLC, which was sold in 2006 to Solidus Networks Inc., the biometric payments company that operated under the Pay By Touch brand and went bankrupt last year.
Mr. Dorsey, a BioPay founder, said his company would not suffer the same fate as Solidus, which shut down its payment service in March; Solidus had offered several products that were tangential to its payment offering, and BioPay concentrates on tools designed to drive more use of its biometric check-cashing system.
When Phoenix bought the BioPay technology from Solidus this year, it opted to focus solely on the check-cashing system and products that support it. At the time Mr. Dorsey said that his team had long wanted to offer a prepaid card for check cashers when they were part of Solidus, but the parent company had lacked the resources to do so.
People who cash their paychecks at sites offering the Phoenix service can also choose to pay some bills and receive the balance on a prepaid card. These are currently handled as multiple transactions, but Mr. Dorsey said he expects the systems to be fully linked by the end of March. Afterward the financial activities will all be handled as a single transaction, which will be faster.
About 700 Phoenix clients offer its check-cashing system, at more than 2,000 locations. Most of its clients are grocery and convenience stores, but some banks offer the system, including Zions Bancorp.
Phoenix expects to have more than a million consumers using the system next year, and today the average paycheck cashed through its system is $450.
Mr. Dorsey said he wanted to offer the prepaid card and bill-payment services to attract more people to the check-cashing service.
"The opportunity is huge with the underbanked market of the population, and one of the things they often don't have is access to cards, whether it be credit cards or debit cards," he said. "Our goal is to grow the base of existing customers."
Phoenix receives revenue from the monthly fees and automated teller machine fees paid by users of its prepaid cards; most of the interchange revenue goes to MetaBank of Storm Lake, Iowa, the Meta Financial Group Inc. unit that issues the cards.
For its walk-in bill-payment offering, Phoenix would get transaction revenue, but the main benefit would be to make the check-cashing system it would be attached to more appealing.
"Our focus with our check-cashing application is serving our users, which are stores and banks that use the system" as a way to draw more customers, Mr. Dorsey said.
"Walk-in bill payment for retailers is often seen as a good traffic generator," he said, even though by itself "it's not a huge money-maker for them."
A small number of Phoenix's clients are "pure check-cashing stores" that are also involved in payday lending, Mr. Dorsey said. Many lenders have said they would be forced to close stores because several states recently passed laws restricting payday loan interest rates, but Mr. Dorsey said such laws would not cause Phoenix much harm.
"Very few of our merchants participate in payday lending … [and] we don't have a significant number of those in the states that are impacted more recently," he said.
Avivah Litan, a vice president and research director at the Stamford, Conn., market research company Gartner Inc., said that by focusing on a more crucial element of the payment chain, Phoenix has demonstrated a better understanding of its end users than Solidus did.
"I think check cashing is what gets the customer in the first place," she said. "It's kind of like a bank — you've got your checking account, and that's what gets you there."
In this way, Phoenix, though it serves the unbanked, operates much like a bank that urges new checking customers to sign up for direct deposit as a hook to get them to use more features of the account, Ms. Litan said.
Solidus "wasn't linked to your payroll check, your direct deposit; they didn't have a relationship with you," Ms. Litan said. "What forms that checking account relationship is your deposits, your paycheck."
Solidus' Pay By Touch system was simply one of many ways consumers had to make payments, she said, and thus it held less appeal to its audience.
"There's lots of ways to get money out" of an account, Ms. Litan said, but "there's very few ways to get money in."
