A start-up payments vendor has developed a prepaid account that can be used without a card and enables people without credit or debit cards to use cash for online shopping.
Retail Expansion Network Inc.'s PaidByCash account is one more in a long list of attempts by financial services providers to attract underbanked consumers, who rely heavily on cash and are viewed as a large, potentially lucrative market, to new payments options.
Michael Marubio, Retail Expansion Network's chief executive, said the product is a way for people to get a taste for electronic payments without requiring them to actually open an account.
"This really is a payment mechanism and not an account, per se," Mr. Marubio said. Retail Expansion Network launched PaidByCash, its first product, Monday. While the product functions in many ways like a prepaid debit card, the company says it is intended to compete more directly with money orders, which are commonly used for one-time purchases.
Retail Expansion Network of Oakland, Calif., has struck deals with several money-services businesses, including Western Union Co. and Moneygram International Inc., to offer PaidByCash accounts at the same stores that offer their products and services in exchange for a share of the fee people pay for the accounts. Mr. Marubio said that his accounts are now available at 49,000 locations, and that the number will soon reach 60,000.
He said that PaidByCash is a faster payment vehicle than money orders, which typically must be mailed to a merchant. The company is targeting the account at teenagers and credit-constrained consumers who do not have other payment alternatives, such as debit or credit cards.
PaidByCash was not developed to compete with prepaid cards, which are "really meant for the unbanked as an alternative to a savings account," he said. His company is developing a reloadable prepaid card to target this market.
In a typical PaidByCash transaction, a buyer would save the results of a shopping session with an online merchant, go to a money-transfer store to request a PaidByCash account for the exact amount needed, and then return to the computer to complete the purchase, Mr. Marubio said.
To load the account, users pay a $4.95 fee to the merchant who sells them the account. He said the product is designed for one-time use and cannot be reloaded. Still, the accounts can hold a balance if the shopper does not exhaust the funds, though after four months a monthly $2.50 maintenance fee kicks in. The account is closed when the balance reaches zero or after two years, when the account number expires.
The inability to reload the account poses challenges, Mr. Marubio said; though customers could load large sums into their accounts and use them for multiple purchases, they might have trouble spending the last few dollars. "Right now there are only a handful of sites on the Web that have split-tender transactions."
His company advises customers to use leftover funds on small purchases, such as song downloads through Apple Inc.'s iTunes. Customers also could use the leftover money to fund a PayPal Inc. account.
PaidByCash cannot be sold to anyone under 13, and Retail Expansion Network uses software to monitor the product's use to prevent the accounts from being used by children, Mr. Marubio said.
There are other limits meant to make the account easier to get. It has spending limits of $350 a purchase and $500 a month, which Mr. Marubio said are high enough to cover most online purchases. "The average Internet purchase is $142."
Allowing higher transactions or reloading the account would make it fall under different regulations, he said; applicants would have to provide their Social Security numbers and undergo a credit check.
The transactions are routed over MasterCard Inc.'s network. Users may also purchase an actual plastic card to access the funds. This feature is required by MasterCard but not promoted actively by Retail Expansion Network, which charges $10 for a card.
The company was officially incorporated in December 2005. It spent 18 months developing PaidByCash, and three weeks testing it in the field.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said that even though Retail Expansion Network is hoping to win over teenagers, it is likely to have more success with the unbanked.
"It makes a lot of sense" for the unbanked, "because they are used to going to walk-in locations anyway" to transfer money and pay bills, he said. Most money orders are used for bill payments, he said, but this use already faces competition from expedited payment services.
And since many places now sell money orders at their exact cost, some people may not feel compelled to pay the additional $4.95 for the PaidByCash account, he said.
Still, parents of teenagers who shop online may prefer reloadable prepaid cards, Mr. Bezard said, because they make it easier to track spending. Parents also may be concerned about sending their kids to some of the locations where PaidByCash accounts can be purchased, such as liquor stores.
Another challenge is the $350 per-item limit, he said. "It seems very low. One of the main issues that people who do not have a credit card have is when they want to travel," their options are limited. Airplane tickets are expensive, and "you can't really go online and take advantage of the rates online and pay with cash." A $350 limit is not high enough to address this, he said.
But the product will find an audience, Mr. Bezard said, because people will like having the payment option. "Typically in the payment business, when you make available different forms of payments, people embrace them."
