As U.S. financial services companies look for ways to capture more of the remittance market, companies in countries to which many of those remittances are sent continue to find new ways to make it easier for consumers to accept payments.
One such case: a cell phone carrier in the Philippines that has developed a service that delivers funds to customers through text messaging.
The service, based on a system that lets users transfer all or part of the balance on their prepaid accounts to merchants, in effect transforms cell phones into purchasing devices.
And some observers say this convergence of wireless communication and person-to-person electronic payments is a model for similar services that may eventually appear elsewhere, including in the United States.
Smart Communications Inc. in Manila introduced Smart Padala in August. (In Tagalog, padala means “something that you send to someone.”)
Smart Padala is an extension of Smart Money, a service introduced in 2000 that uses prepaid accounts as a payment mechanism. Consumers access their Smart Money accounts with MasterCard credit cards issued by Banco de Oro, a large Filipino retail bank. They can use the balances to pay their telecom bills and to make purchases from merchants.
The Padala service eliminates the need for a physical card; payment information is stored on an electronic card (a “subscriber identity module” card) inside the phone.
Smart Communications has also created a new use for the prepaid account: moving funds to other accounts. “We are using the cell phone to transfer the value,” said Ramon Isbirto, the company’s head of public affairs.
Smart Padala also lets people in other countries transfer funds, through remittance companies, into Smart Money accounts. Account holders can use the money at stores or get participating merchants to give them cash instead, for a 1% fee.
Numerous merchants do so, including McDonald’s and SM Department Stores, one of the largest retailers in the Philippines.
“You can use your phone to buy things; it’s paperless money,” said Therese Gamboa, a manager at New York Bay Remittance Corp., which sends money into Smart Money accounts.
Though Smart Commutations is aggressively promoting the Padala service in the Philippines and Mr. Isbirto said it is quickly becoming well-known there, actual use is low. He said there were just 14,000 remittance transactions in the first two months.
Ms. Gamboa said that less than 1% of the remittances her company sends to the Philippines use the Smart service; door-to-door deliveries and direct transfers into bank accounts remain the most popular methods.
But Padala is less expensive than other remittance techniques, she said. New York Bay charges $8 to send money via a Smart account and $10 for a door-to-door cash delivery.
Mr. Isbirto said a Smart remittance is typically 20% to 30% cheaper than traditional remittance services, though costs will vary with the country of origin and specific provider. Text message remittances arrive in seconds. Though other types of remittances can be processed just as quickly, he said, they often require the recipient to go to a specific place to get the funds.
Padala taps into two important cultural traits in the Philippines, Mr. Isbirto said.
First, it is a big destination for international remittances. He estimated that more than $7 billion is sent there every year and that many of the recipients do not have bank accounts.
Second, the country’s telecommunications infrastructure is less advanced, so cell phones are extremely popular. Even unbanked customers who may not have a land line often have a cell phone, usually prepaid. And text messaging has been embraced more enthusiastically in the Philippines than in most other countries.
Those factors are driving the popularity of Padala text message payments, Mr. Isbirto said. “It is becoming very common for people to transfer the value of their Smart accounts here.”
Ed Kountz, a senior analyst with TowerGroup, the Needham, Mass., market research unit of MasterCard International, said the idea of using a cell phone-activated balance transfer as a payment method is not new, but “the Philippines is one of the markets where its beginning to take off.”
Mexico and other Latin American countries have the same characteristics — a large remittance market and strong cell phone usage — which could spur the adoption of similar services there.
It is common for these types of applications to evolve, Mr. Kountz said. For example, Smart needed to use prepaid accounts as a way to ensure that unbanked customers would pay for its services. That led to the Smart Money card service, which could be used at merchants as well, and that prompted the development of the Padala transfer feature.
“They are looking for ways to add incremental value to their electronic payment system,” he said. “Smart is tapping into a specific need and then expanding.”
Cultural factors that led to Padala in the Philippines are absent in the United States, Mr. Kountz said, so he does not expect to see a text message service that remits to people here.
However, the service those factors led to — using a cell phone to make purchases — could eventually appear in this country. Technology trends that do not originate in the United States often migrate here, he said, and a portable payment device other than credit and debit cards could easily find a home in the U.S. payments market.
For example, payroll cards, which function as prepaid accounts, are becoming more popular with employers, and many parents are using prepaid cell phone accounts for their children. These could spawn new e-payment systems, he said.
“A transaction is a transaction,” whether it is initiated by a phone or a card, Mr. Kountz said. “I think it’s a matter of time before something similar happens here.”
