PayNearMe Debuts Cash Payments for Online Buys

PayNearMe Inc. on Wednesday announced the launch of a payment system that lets unbanked consumers pay for goods online or over the phone with cash. The system, which relies on real-time links to point-of-sale terminals in 6,000 U.S. 7-Eleven stores to collect and record cash transactions, has attracted eight announced merchants so far, including Amazon.com Inc. This is in addition to Facebook, where consumers can use PayNearMe to buy Facebook Credits. “There are many huge accounts in development that will come up in the next few months,” Danny Shader, PayNearMe’s chief executive, tells Digital Transactions News.

Payments observers may know Mountain View, Calif.-based PayNearMe better for a product it introduced early this year called Kwedit Promise. The product attracted plenty of attention—and inspired not a little head-scratching—by allowing consumers to buy virtual goods with a promise to send in payment later. Those who paid in full received a higher “Kwedit score,” entitling them to benefits on the next transaction. PayNearMe’s latest product is an outgrowth of a separate, lesser-known service called Kwedit Direct, which was aimed at allowing consumers to buy online with cash.

This product, which has now been rechristened PayNearMe, is intended for online merchants, rental companies, lenders, or any other company interested in reaching consumers who don’t have credit and debit cards. “It’s much broader than e-commerce,” says Shader.

When the consumer is ready to pay, PayNearMe generates a receipt that includes a bar code and a transaction code linked to a record in its system. The slip also contains step-by-step instructions for the cashier. The consumer can print this out and take it to the closest 7-Eleven store, where a clerk scans the slip, takes cash payment from the consumer, and hands over a receipt. Merchants can arrange to have marketing messages printed on these receipts. With real-time links to the 7-Eleven terminals, PayNearMe updates its record and notifies the merchant it has received good funds. It then settles with the merchant via the automated clearing house network.

As soon as the consumer walks out of the store, he’s done with the transaction and can expect his merchandise. “You can think of it as the world’s longest credit card authorization or shortest layaway,” says Shader. He says PayNearMe shares revenue with 7-Eleven but is also looking to add more chains to perform cash acceptance.

PayNearMe’s revenue comes from the fees it charges merchants to accept payments. Shader won’t give specifics about the company’s fees, except to say they are “reasonably complex,” since rates can depend on type of merchant and other factors. Unlike most alternative payments, however, PayNearMe is priced “slightly” higher than credit and debit cards, Shader says. This may seem counter-intuitive, given merchant sensitivity to acceptance costs, but Shader argues merchants that don’t sell face-to-face are willing to pay a small premium to get access to cash-paying customers. He also points out that PayNearMe and 7-Eleven have an expense other online payment systems don’t. “There’s human labor handling the cash,” he says.

While Shader says most merchants will accept a pricing premium as a marketing cost to reach unbanked customers, Celent LLC analyst Red Gillen says alternative-payments programs can ill afford obstacles to merchant recruitment. “You’ve got to acquire merchants,” he notes. “There’s a long hard slog there as opposed to accepting a major payment brand.”

Gillen, while calling PayNearMe an “interesting concept,” says many unbanked consumers may see little added value over existing prepaid cards. Though prepaid cards typically levy load and activation fees, Gillen says these charges can be amortized over many transactions with large value loads, such as payroll deposits. PayNearMe may be free on the surface, he says, but “there’s the cost of schlepping down to the 7-Eleven”—both in time and, possibly, in gasoline or bus fare.