Dwolla, an online payments platform, released a Push-to-Debit functionality that they said will allow faster payouts to a debit card and give clients additional flexibility.
“We have been moving money for quite some time,” VP of Product Ben Schmitt said, “In doing so, we’ve learned a lot about what our customers want.”
Founded in 2008, the Dwolla team has worked to incorporate many different ways for their users to move money. They offer same day, next day, and other payment types, but said customers were always looking for ways to transfer funds faster. Now with Press-to-Debit, Dwolla offers a way to shift funds instantaneously, a product that they say fits many use cases.
“It could be the gig economy, it could be online marketplaces, but people want to move funds faster,” Schmitt said. “And I think especially during a pandemic, getting funds quickly adds a lot of value.”
Dwolla wanted to offer the platform’s simplicity with debit speed. Schmitt said the process is PCI security compliant and nearly instantaneous, though it might take up to 30 minutes.
“The value of instant payments is in getting the funds now when you need them, but there’s an emotional response,” Schmitt said. “When you see the funds hit and they’re instant- when you push a button and show up just like that, it’s fascinating.”
It works not just for debit, but prepaid cards, meaning businesses paying employees or customers don’t need a relationship with a bank to get funds transferred.
“If you’re a gig worker and do some work during the day and finished your shift, you can use an app or website and clock out,” Schmitt said. “Then a business has a record of the work performed, and say ok, here’s the agreed-upon payment and issue that to you right away.”
Point-of-sale (POS) lenders, also referred to as buy-now-pay-later (BNPL) firms, allow shoppers to break up their individual purchases into installments, often without interest. By adding BNPL as an option at checkout or further upstream in the purchase process, the consumer’s buying power is increased and they are often less likely to abandon their checkout cart. It is a win / win for all stakeholders.
For these reasons, POS lending is one of the fastest growing segments in unsecured credit, with volume increasing at 40 percent year-over-year. COVID has further accelerated the demand for credit options at checkout.
According to McKinsey, annual growth is expected to jump to 150 percent thanks to an explosion in online shopping and government subsidy programs boosting retail sales. In Canada, firms such as Uplift, Paays, and PayBright are all seeing merchant demand skyrocket for their services, with the latter onboarding over 250 merchants per month.
POS lenders are able to subsidize APRs by charging the merchant a fee of 4-6 percent of the purchase price. This is on average 2 percent more than the fees charged by credit cards companies. Despite the larger fee, BNPL is very attractive for retailers for a number of reasons. By providing point of sale financing retailers see:
- 30% increase in basket size
- 25% reduction in cart abandonment
- 20% increase in repeat traffic
With installment payments as an alternative, credit cards have seen a decrease in popularity among young shoppers, particularly on smaller ticket items under $500. There are a number of reasons why:
1. Clunky signup experience. Signing up for a credit card at checkout requires lots of paper, personal information, signatures and significant patience – antithetical to the one-tap checkout shoppers are accustomed to. Alternatively, BNPL approval is instant at checkout. 75% of merchants even advertise POS financing far before the register, at the beginning of the customer journey which can increase conversion by two to three times.
2. Challenge to qualify. 19 percent of consumers ages 22 to 30 lacked the credit history to be approved for credit cards in the first place. Many BNPL products do not perform credit checks, and those that do use alternative data sources to underwrite thin-file borrowers.
3. High APRs. With their parent’s household debt in their rear view mirror, many younger shoppers have an aversion to carrying revolving credit balances. Millennials on average carry two fewer cards than their parents. Psychologically, $1000 on your credit card looks scarier than four installments of $250 over time.
4. Customer confusion. Inactivity fees, late fees, over-the-limit fees, cash advance fees, are all poorly understood and masked within dense monthly statements. BNPL offers an elegant digital first experience and straightforward reporting.
The Supporting Cast
Today POS lenders are competing in a land grab for merchant partnership. But for FIs and fintechs who have yet to plant their flags, there are still ways of participating in the BNPL boom.
- Banks. Banks have largely participated indirectly in the BNPL sector, by providing portfolio financing to fintechs or by offering installment options for larger ticket items within their existing credit card programs. Wayne Pommen, CEO of PayBright, sees more bank and fintech collaboration in the next few years: “I predict more buying and partnering, Banks are too far behind to build this themselves.” Marcus Pay, the recently launched retail banking arm of Goldman Sachs is the only group to directly compete in the POS financing ring, with JetBlue as their launch partner.
- Platforms. E-commerce enablers that power millions of independent merchants are piling in to embed POS financing within their platforms. Marketplaces Ebay and Etsy have partnered with Afterpay and Klarna, while the digital infrastructure whale Shopify has an agreement with Affirm.
- Cards. Traditional credit card companies who have the most to lose from BNPL are getting ahead of the trend in several ways. Visa took a controlling stake in Klarna in 2007. More recently they launched Visa Installments, a developer tool for issuers in the Visa network to pilot branded installment products. Though Visa Installments stretches the definition of BNPL, David Fry, CEO of travel financing startup Paays does not mind the ambiguity. “I am not religious about the distinction between cards and installments. What we care about is what the customer is looking for, and what they have to pay to get access to that product”.
POS Lending has the potential to transform consumer lending as it’s evolution is inextricably tied to the growth of e-commerce. It is all about understanding the needs of the shopper and their digital journey. POS lenders are making it increasingly easy for merchants to streamline the buyer path to purchase.
This week Google announced that it is expanding its service offerings in India, with small and medium-sized businesses in the country now being able to apply for loans via the Google Pay for Business app. The result of partnerships with banks, Google also announced that it will be rolling all of its SMB-related services into one platform; these include Google My Business, an app that allows owners to make a business profile and get a Google Maps listing; and Google Pay Spot, which lets entrepreneurs customize their digital storefront, as seen by customers in the Google Pay app.
This is just the latest of features released in India by the tech giant, with it launching the ability to transfer money between Google Pay users earlier this year. What makes this interesting though is that in a recent interview with Business Insider, a Google spokesperson noted that the company’s decisions in global markets have become increasingly more influenced by its trialing of new features in India.
“We’re always trying to understand and learn from changing consumer behaviors worldwide so we can build more helpful features,” the spokesperson explained. “Our learnings from Google Pay in India will enable us to make digital money experiences simple, helpful, and accessible and create new economic opportunities for both users and our partners around the world.”
So does this mean Google will soon be joining the likes of Square and Clover and begin offering funding to American small businesses? The future is not so clear, but with the company announcing two weeks ago that it plans to incorporate digital storefronts into Google Pay, serving as an in-app portal to purchase goods, it appears that long-time features of the Indian version are beginning to bleed into the American counterpart.
Having announced its intentions to offer checking accounts in 2020, and with leaks earlier this year pointing towards a Google Pay debit card, it appears as if Google is following in the steps of its rival, Apple, and wading further into the financial services sector.
Today Kabbage, the Atlanta-based fintech company that has been funding businesses since 2009, announced its latest product: customized short-term loans that are a result of the combination of Kabbage Payments and Kabbage Funding.
The loans, which run for the length of 3-45 days, are best suited to those businesses who need funding to cover issues in cash flow caused by the unpredictability of revenue, says Kabbage’s Head of Income Products Abraham Williams. “Rent and payroll are on set days every month, but getting paid is variable. We’ve done loans for 6, 12, and 18 months, and we’ve seen that people pay those off sooner, so we saw a need to have a short-term loan to fill gaps in cash flow.”
The terms of such loans will be decided upon by making use of the aggregate data that Kabbage has access to. With its customers providing a number of data points, such as their Amazon account, banking details, payment processes, and social media accounts, Kabbage is in “a really unique position because of the way that we make decisions on loans for small businesses,” notes Williams. “We can really see a very complete picture of a business, which can be different than how other people are essentially underwriting and assessing risk for loans.”
Two options are available for repayment: a traditional balloon payment to be paid at the end of the 45-day period, or a percentage of each sale made using Kabbage Payments going towards repayment. The latter of these provides more flexibility, with merchants being able to choose the percentage of each sale that is to go toward Kabbage and, as well as this, the fee attached to the Kabbage Payments option is smaller.
With the fee’s amount and terms being dictated by aggregated data, Kabbage is describing them as “dynamic,” providing individualized offers. Fees begin at 0.1% with the minimum amount to be borrowed being $500 and the maximum set at 10% of a merchant’s available line of credit for the short-term.
“A new kind of credit card. Created by Apple, not a bank.”
Now plastered across Apple’s website, these words signal the company’s next advancement into finance with Apple Card, the new credit card service it is launching later this summer. And they’re only half true.
While it is a novel take on credit cards, it’s not entirely free of banking’s influence, as Goldman Sachs has partnered with Apple for it. According to Margaret Keane, CEO of Synchrony Financial, the largest provider of store credit cards, there “were a lot of us” bidding for the partnership with Apple, “us” being banks and card providers, but Goldman came out on top.
The spoils of war being won in this case are a 2023 earnings-per-share gain of 2% by 2023 for Goldman, as well as the responsibility of managing all card payment disputes. The latter of which being an anomaly amongst Apple services, as the company has a history of overseeing all aspects of the customer experience.
What Apple stands to gain in comparison is a 1% gain by 2023. Being below the industry average, neither of these forecasts are something to be excited about. But these figures aren’t surprising, with the card offering no fees and low interest rates it appears as if Apple Card will be launched with the hope of staking some of the market share rather than seeing profits soar.
Offering financial statements and analysis via an app, as well as being available in two forms, a digital card in Apple Wallet and a titanium card that features no numbers on it, front or back, Apple Card bares a striking similarity to the recent trend of app-based banking witnessed in Europe, with the likes of N26 and Revolut booming in popularity in previous years.
Where Apple differs from these companies is that it specializes in credit, thus it offers a range of features unique to both the format and their position as a near-omnipresent tech giant. Auto-fill integration with Safari; cash back on each purchase made with Apple Card, being 3% on any Apple products purchased, 2% on non-Apple purchases, and 1% when using your Apple Card at a vendor who doesn’t accept Apple Pay; an APR range of 13.24-24.24; and options for when you’d prefer to pay your interest, complete with clear payment schedules, are all being promised. As well as this, Apple is hoping to combat the common inconvenience of cryptic merchant names that pop up in statements. Jennifer Bailey, Vice President of Apple Pay, explained that “With Apple Card we use machine learning and Apple Maps to transform this mess into names and locations that you’ll recognize.”
All of this was outlined back in March, when Tim Cook took to the stage in Cupertino, California to claim that Apple is making the “most significant change” to credit cards in five decades. But months have passed since this assertion, and as the vague release date of “summer” offers no specificity to Apple fans who are holding their breath, those who are curious about Apple Card are left to be satisfied by the infrequent reviews that slip out from Apple employees who are enrolled in the program’s beta.
We’ll find out if the wait will be worth it sometime soon, probably, but until then there’s always the 1986 Apple credit card that can be ogled at until Apple Card is released to the public.
Walmart customers can now pay for items using credit from Affirm, the online consumer lender announced yesterday. Walmart customers can find out how much they qualify for online and then make online or in-store purchases with in three, six or twelve monthly installments. A credit decision is made in real time and does not affect the customer’s credit score, according to Affirm.
“Walmart serves millions and has become a leader in the retail landscape with its commitment to help shoppers ‘save money and live better,’ which closely mirrors our own mission to ‘improve lives’ with our products,” said Max Levchin, founder and CEO at Affirm, as well as a founder of PayPal. “I’m looking forward to introducing Walmart customers to a modern and innovative way to buy the things they need.”
Affirm is now available as a payment option on Walmart purchases ranging from $150 to $2,000. This is not Walmart’s first foray into financing. In fact, in July of last year, Walmart entered into an exclusive partnership with Capital One to issue a Walmart credit card. But Elizabeth Allin, Vice President of Communications at Affirm, said that this partnership is the first point-of-sale loan product partnership for Walmart.
“They’ve really embraced e-commerce and the evolution of digital and mobile,” Allin said of Walmart, which has been the biggest retailer in the world for years.
Now 57 years old, the retail giant is pursuing partnerships with financial organizations to facilitate access to customer credit. But back in 2006, Walmart set its sights on bringing these lending operations in house, by becoming bank. Using a controversial statute, it attempted to get a charter to become an ILC bank. Met with strong opposition from banks and other opponents, Walmart backed down.
More than 21 million merchants accept PayPal to take advantage of the 246 million consumers who use it. That’s a lot of merchants to offer value-added products like PayPal Working Capital and invoicing services. But then there’s Venmo, a fast growing digital wallet that PayPal also owns that processed $19 billion in payment volume last quarter and is projected to handle $100 billion worth across all of 2019.
Although Venmo itself is not a profitable business yet, it has gone from generating almost zero revenue to hitting a $200 million revenue run rate by the end of 2018. And it’s bringing in new users thanks to a network effect. When a network effect is present, the value of a product or service increases according to the number of others using it.
PayPal CEO Dan Schulman said on the company’s earnings call on Thursday that PayPal and Venmo will probably attract another 33 million new active users in 2019, thanks in part to the network effect and “the virality of Venmo.”
Meanwhile, PayPal COO Bill Ready said on the same call that merchants tend to come to them directly for services like working capital loans rather than to online marketplaces like Shopify or Wix because oftentimes merchants sell across multiple marketplaces. “PayPal becomes the aggregation point for them to connect to each of those platforms,” he said.
Yesterday, Ingo Money announced the launch of Ingo Money QuickConnect, a new solution that allows companies that issue payments – including loans – to disperse funds directly to a merchant’s debit card. Ingo Money has partnered with Visa Direct to facilitate these direct payments.
This is the official announcement for a product that has been in the works for over a year. OnDeck announced its partnership with Ingo Money last October, but didn’t start using it until it was ready earlier this year, according to an OnDeck spokesperson. So far, OnDeck only uses the Ingo Money QuickConnect service to provide same-day disbursements to their line of credit customers. The spokesperson said they have seen great demand among customers for receiving money instantly.
“Ingo Money QuickConnect allowed us to get to market faster than we ever believed possible and with minimal time, cost and hassle,” said Sam Verrill, OnDeck’s Director of Product Management. “The solution has thoughtfully solved for all the pain points and hurdles to deploying a new payment solution, making it quick and easy to begin delighting customers and cutting costs with digital real time disbursements.”
Chief Product Officer for Ingo Money Lisa McFarland told deBanked that OnDeck was their first client in the lending category, and that they now have a few other lending clients, but declined to mentioned which.
“What’s exciting about Ingo Money QuickConnect is that customers can access money the minute they need it,” McFarland said. “At night, on weekends and holidays.”
The Ingo Money QuickConnect solution is also being used in other ways, including insurance companies paying claims and child support payments where the government is an intermediary. Use in payment of airlines vouchers to customers and by the IRS to people who are owed money are also being considered, according to McFarland.
“We’ve heard time and again from customers that they need to deploy a push-to-card payment solution but are intimidated by the time and effort required,” said Ingo Money CEO Drew Edwards. “Ingo Money QuickConnect removes the burden and allows a company to almost immediately begin offering real-time payments through Visa Direct, while retaining the ability to easily expand the solution later to include payments to online wallets like PayPal and Amazon or even cash out Moneygram locations.”