A company that markets bill-payment identification cards and stored-value payment cards to the unbanked is developing a way to use the cards to pay bills online.
PreCash Inc. has been offering a bill-payment card since 1998, and 4 million households use it to authenticate themselves when paying their monthly bills in person. In June it began offering a general-purpose prepaid MasterCard card.
Randy Templeton, the Houston company's senior vice president of marketing, said it plans by early 2006 to offer an Internet- and telephone-initiated bill-payment service to people using that card. It has 30,000 customers now for the stored-value card.
"Expanding bill payment off the stored-value card is very natural," Mr. Templeton said.
PreCash's current flagship product is a card that a biller issues to its customers to use for identification purposes when they pay bills in person. It has no monetary value and stores no funds, but it does store the customers' account details on a magnetic stripe. This makes it easier for the billers' cashiers to process the in-person payments, and it reduces errors, Mr. Templeton said.
"The card, in this case, is not a stored-value" card, he said. "The card serves as an identifier just so the transaction can be very fast and very accurate."
Beth Robertson, a senior analyst at MasterCard International's TowerGroup Inc. research unit in Needham, Mass., said the idea of providing online bill pay to the unbanked has been proposed before.
Western Union Financial Services Inc., a unit of First Data Corp., has a bill-pay service that can be used by the unbanked, but they make up a minority of Western Union's customer base, Ms. Robertson said. "About 65% of them in the U.S. are actually banked consumers," she said.
For about a year the Metavante Corp. unit of Marshall & Ilsley Corp. has been offering a service that is similar to PreCash's and is connected to Metavante's payroll card business.
Ed McLaughlin, the vice president of product and strategy for Metavante's payment services group, said that payroll card users could use the consolidated bill-pay service online and at kiosks that can be installed in break rooms or nearby retail locations. He would not say how many kiosks are deployed or how many end users pay their bills online.
The unbanked like this service because it helps them avoid late fees by giving them a way to pay their bills from home or at work instead of finding the time to pay them in person, Mr. McLaughlin said.
"There's almost a reverse tax where the expenses are paid much greater by those who can least afford it," he said of the fees. "This is a community which, literally, deserves better service."
Metavante announced in June 2004 that it was working with UniRush LLC, a New York stored-value card company founded by the rap star Russell Simmons, to create a similar online bill-pay service for the UniRush card.
Craig Marshall, UniRush's chief operating officer, said 500,000 individuals use the UniRush stored-value card, which lets them pay their bills online or by phone through Metavante. Fewer than 5% have enrolled for the bill pay service, but UniRush is planning to redesign its Web site in September to better promote it.
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said PreCash's online bill-pay service "is a great idea. It's a solid business model. It also lends itself well to people who don't fit your typical perception of who the unbanked is."
For example, though it suits those with poor credit or with a cultural aversion to banks, it also might appeal to teenagers who do not have bank accounts but would like to pay their cell phone bills from their computers.
Banks may want to pay attention, Mr. Schatt said, because "pretty much all banks are looking to find people who are marginally banked and lure them in." But PreCash's "model doesn't necessarily lend itself to banks," he said, since the service is mainly for people who have decided not to have a banking relationship.
PreCash has leveraged its relationships with 27 billers to market its prepaid MasterCard card, which the billers offer to their cash customers. The billers may also accept cash to fund the prepaid accounts.
Though the cards can be used anywhere that MasterCard is accepted, Mr. Templeton said the billers are encouraging customers to use it to pay their bills.
Half the billers that use the PreCash ID cards have agreed to load the stored-value cards.
Customers can also give their employers an account number to arrange to have their paychecks directly deposited to the prepaid account, Mr. Templeton said.
Many consumers who use PreCash cards "don't understand that the banking system is not real-time" and that money deposited is not immediately available, he noted. This misconception may have resulted in some people being hit with burdensome overdraft fees, causing them to mistrust banks.
Though linking direct deposit to a prepaid card may seem similar to a bank account, Mr. Templeton stressed that overdraft fees are impossible with the card. "With a prepaid card, if the money's not on the card, the transaction simply will be denied."
He said PreCash's forthcoming online service will be much like bank Web sites that let people pay multiple billers from a single site. Though the service's target audience is people without bank accounts, Mr. Templeton said half the people with a PreCash card have Internet access.
To reach the remainder, he said he is working on a telephone hotline that would offer the same bill-payment capabilities.
Though consolidated online bill payment - the ability to pay more than one biller from the same Web site - is a service commonly associated with banks, nonbanks have tried it before.
America Online Inc. and LowerMyBills.com Inc. both have consolidated bill-pay sites, which are run on software from Yodlee Inc. of Redwood City, Calif. Discover Financial Services Inc., a unit of Morgan Stanley, uses a Yodlee product to let customers pay bills using its card accounts.
Yodlee's bill-pay products connect directly to the billers' payment Web sites, so the available payment options are not consistent - one biller might accept payments from stored-value or gift cards, but another may not.
Timothy Sheehan, Yodlee's chief marketing officer, said some of his customers and potential customers want to use Yodlee's software to enable the unbanked to pay their bills in cash or with a prepaid card at walk-in payment centers. Yodlee has devised workarounds that enable these walk-in companies to process payments to any biller through the merchants' bank accounts.
"Some of the companies we're talking to are targeting the nonbanked," Mr. Sheehan said.
