April 23, 2014
By Robin Arnfield
The large U.S. population of unbanked and underbanked consumers is fertile ground for kiosks offering financial services such as bill payments. These kiosks provide a low-cost alternative to banks for cash-preferred consumers.
According to a survey by the Federal Deposit Insurance Corporation, more than one in four (28.3 percent) U.S. households were unbanked or underbanked in 2011. As these households conduct some or all of their financial transactions outside the mainstream banking system, they represent a key potential market for financial services kiosks.
“The underbanked market is growing in the U.S.,” said Rob Goehring, chief marketing officer at Vancouver, Canada-based TIO Networks, which operates a network of bill payment kiosks across the U.S. “More and more people are moving away from banks to alternative financial services providers and general-purpose reloadable prepaid debit cards, due to the high charges imposed by banks for checking accounts.”
According to Goehring, millennials are attracted to alternative financial services, as they aren’t wedded to holding traditional bank accounts and are used to carrying out transactions on self-service devices. “TIO sees a good opportunity to provide financial services at kiosks to millennials and other underbanked consumers,” he said.
“Bill pay is getting a lot of traction at financial services kiosks in the U.S.,” saidNikki Baird, managing partner at U.S.-based consultancy Retail Systems Research. “In Europe, there’s a strong market for purchasing prepaid phone time at kiosks, but that doesn’t seem to be as popular in the U.S. I’m also seeing more interest in facilitating online orders through kiosks in the U.S. This involves someone paying cash at a kiosk, which then releases the customer’s order for shipment to their home.”
According to Goehring, the walk-in bill payments market generates annual fee revenues of $2 billion a year in the U.S., including both clerk-driven bill payments and self-service payments at kiosks. “Offering self-service bill-pay kiosks lets the clerk focus on other sales activities that are more revenue-generating for the store,” he said.
In January TIO acquired U.S.-based Globex Financial Services and its operating business Global Express Money Orders. Globex provides clerk-driven bill payment services and money orders at more than 3,000 locations in the Eastern U.S. TIO plans to cross-sell its self-service bill-payment services to Globex’s customer base.
Despite the rise of companies such as PreCash that offer bill payments from mobile devices, Goehring doesn’t think mobile devices pose a major threat to bill-payment kiosks just yet.
“Mobile devices represent a major opportunity,” Goehring said. “Underbanked consumers may not be heavy users of the Web, as they don’t tend to have desktop PCs. But they use mobile phones more heavily than the average American for communications with other people and for paying bills.”
TIO has developed a mobile wallet for its customers, which can be accessed both at TIO kiosks and on smartphones. So Goehring sees financial services kiosks and mobile devices as playing a complementary role, since mobile bill-pay services are restricted to accepting payments either via registered bank accounts or credit, debit or prepaid cards.
“Mobile alone will not be enough to unravel the financial services kiosk market, because of the need many consumers have to make cash payments for bills, either by feeding the cash into a kiosk or handing it over to a clerk,” Baird said. “The opportunity is definitely around integration, with mobile to start the bill-pay transaction and a cash-accepting kiosk to finish it.”
“There’s the potential for bill-payment services companies like TIO to offer mobile-kiosk integration, so mobile users can make cash payments at kiosks,” Goehring said. “A customer could pre-stage a bill payment or an online shopping transaction on their smartphone. They would receive a barcode or a PIN on their smartphone, which they would enter at the nearest TIO kiosk to make a cash payment.”
“PreCash is talking with a number of kiosk companies about deploying pre-staged transactions on their kiosks as a fulfillment of cash-based bill payment transactions,” said Blair Jeffery, PreCash’s senior vice president of sales and business development.
PreCash’s Evolve Money platform enables cash-preferred consumers to pay their bills by loading funds onto their Evolve Pay Bucks or Blackhawk Reloadit card at a retailer. They can then use the funds they have loaded to pay bills using the Evolve Money mobile app or mobile-optimized website.
“Ultimately, mobile solutions and kiosks drive towards the same goal — making the process faster and simpler for the customer,” Jeffery said. “We think one of the big shifts in retail payments will be a move toward ‘in-lane payments’ that are clerk-assisted and not clerk-driven. This is a model that would rely heavily on pre-staging transactions. Kiosks could effectively simplify that process and move it outside of the retail establishment, similar to how Redbox has found success delivering DVD kiosks outside major retail outlets.”
TIO sees a significant opportunity to offer cross-border money transfers at its kiosks. “Right now, our kiosks don’t offer money transfers, but we are working to develop partnerships with money transfer providers,” Goehring said. “Our goal is to enroll customers into our wallet, and, once they have become wallet members, to offer them extra services such as money transfers.”
Goehring sees the potential for kiosks to offer low-cost cross-border money transfers using Bitcoin. “Crypto-currencies such as Bitcoin will be a game-changer for MoneyGram and Western Union,” he said.
“The fees for sending funds to other countries via traditional currencies are pretty high,” said Paula Rosenblum, managing partner at Retail Systems Research. “Bitcoin’s advantage is that it eliminates any kind of exchange fee issue.”
Under regulations issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network, U.S. kiosk operators wanting to offer Bitcoin transactions need to get a money transmitter license, said Robert Frimet, chief compliance officer at Delaware-based financial kiosk developer InterWallet.
General-purpose reloadable prepaid cards have become a major force in the U.S. financial services industry. While originally targeted at unbanked and underbanked consumers as well as millennials, GPR prepaid cards are popular with mainstream consumers for activities such as travel, online shopping and household budgeting. Aite Group predicts that the amount loaded onto U.S. GPR prepaid cards will rise from $43.2 billion in 2011 to an estimated $106 billion in 2016.
“The prepaid card market has really expanded in the U.S.,” Goehring said. “There’s definitely an opportunity for kiosk operators to sell GPR prepaid cards. However, offering GPR prepaid cards at kiosks may be challenging due to the need to comply with KYC regulations.”
Goehring suggests that consumers could enroll for GPR prepaid cards on their mobile device, then pick up and activate the prepaid card at a kiosk. “I envisage prepaid card issuers offering the ability for prepaid card applicants to scan their driver’s license using photo enrollment software from a company such as Mitek on their smartphone,” he said. “Customers would then be able to activate and load the prepaid card at a kiosk.”
As independent ATM deployers begin to roll out multifunction ATMs offering a wide range of financial services including bill payments, check cashing, prepaid cards and money transfers, this will provide competition to alternative financial services kiosks.
“I see retailers having a lot of interest in multifunction ATMs, as a way to drive traffic to their stores by leveraging services that are non-competitive,” Baird said.
Goehring argues that multifunction ATMs could provide an opportunity for bill-pay kiosk companies like TIO. “Our database of 10,000 billers is one of the largest biller databases in the U.S.,” he said. “Our system provides consumers with same-day bill payments. This is a very important feature for underbanked consumers who often can only pay bills at the last moment as they live from paycheck to paycheck. TIO could partner with ATM operators to provide their customers with a same-day bill payment capability from TIO’s biller database.”
InterWallet has developed touchscreen-based kiosks which offer a wide range of products and services, including bill payments, GPR prepaid cards, prepaid phone cards, SIM cards, parking and event tickets, and money transfers. The kiosks will accept cash, debit cards and Bitcoin payments, and will include a built-in document scanner and imaging technology which will have the capability of taking a picture of a customer or their identification.
InterWallet is developing a mobile app which will enable consumers to make mobile payments using debit cards or Bitcoin.
In March, InterWallet announced an order for 1,000 of its multifunction kiosks from Florida-based Open Payment Solutions. InterWallet has also received orders from Canada, Hong Kong, Mexico and the Netherlands for its kiosks.
“The Florida kiosks ordered by Open Payment Solutions will be going live in eight to 10 weeks’ time, and will include a cash-dispensing capability,” Robert Frimet, InterWallet’s chief compliance officer, said. “We think the biggest transaction types at our kiosks will be bill payments and the purchase of phone cards and prepaid debit cards.”