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Phoenix Check Cashing Inc. has added prepaid debit 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 unbanked consumers by enabling them to authenticate themselves with their fingerprints.
The new services were developed to complement the Herndon, Va.-based company's check-cashing system, says Jon Dorsey, Phoenix CEO.
"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," Dorsey says.
Veterans of BioPay LLC founded Phoenix. Solidus NetworksInc., a San Francisco-based biometric payments company that operated under the Pay By Touch brand, purchased BioPay in 2006. Solidus filed for bankruptcy protection earlier this year.
Dorsey, a BioPay founder, says his company would not suffer the same fate as Solidus, which shut down its payment service in March. Solidus 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, Dorsey said his team long had wanted to offer a prepaid card for check cashers when they were part of Solidus, but the parent lacked the resources to do so.
Individuals who cash their paychecks at sites offering the Phoenix service also can choose to pay some bills and receive the balance on a MasterCard prepaid debit card, which is issued on-site.
These are currently handled as multiple transactions, but Dorsey expects the systems to be fully linked by the end of March. Afterward, the financial activities all will be handled as a single, faster transaction.
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 1 million consumers using the system next year, and today the average paycheck cashed through its system is $450.
Dorsey says he wants to offer the prepaid card and bill-payment services to attract more consumers 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 says. "Our goal is to grow the base of existing customers."
The total underbanked population comprises 106 million adults, or 49% of the U.S. population ages 18 and older, according to the Center for Financial Service Innovation, a Chicago-based company that focuses on financial services for low-income consumers.
Phoenix receives revenue from the monthly charges it applies to its prepaid cards and the ATM fees cardholders pay; most of the interchange revenue goes to MetaBank of Storm Lake, Iowa, the Meta Financial Group Inc. unit that issues the cards.
Avivah Litan, vice president and research director at the Stamford, Conn.-based market research company Gartner Inc., says by focusing on a more-crucial element of the payment chain, Phoenix has demonstrated a better understanding of its end users than Solidus did.
"Check cashing is what gets the customer in the first place," Litan says. "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 underbanked, 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, she says.
Solidus "wasn't linked to your payroll check, your direct deposit; they didn't have a relationship with you," Litan says. "What forms that checking-account relationship is your deposits, your paycheck."
Solidus' Pay By Touch system simply was one of many ways consumers had to make payments, and thus it held less appeal to its audience, she says.
"There's lots of ways to get money out" of an account, Litan says, but "there's very few ways to get money in." ATM
