(July 15, 2010) BillFloat Inc. launched its service this week with a hefty vote of confidence from initial investors that include PayPal Inc. and a business proposition that grants spot credit to hard-up consumers so they can delay paying their bills. Like Bill Me Later, which grants so-called transactional credit for online purchases, BillFloat hopes to find success at a time when a struggling economy is leaving millions pinched for cash. “Many say, ‘You’re the Bill Me Later for bill payment,’” says Ryan Gilbert, BillFloat’s founder and chief executive. “Frankly, I like that phrase.”

So, apparently, do investors. Baseline Ventures, First Round Capital, Venrock, and others joined PayPal in a $4.5 million Series A round of funding for San Francisco-based BillFloat, money the company can use to attract more users and build out its network of billers. Gilbert, who previously ran PropertyBridge Inc., a processor specializing in electronic rent payments (Digital Transactions News, tk 2007), says his new venture has “hundreds” of users and a biller count numbering 3,000. “It’s very early days,” he says, projecting the user count will be well into the thousands by year’s end.

With BillFloat, a consumer who needs more time to pay a bill can use the service to have the biller paid in full, then take up to 30 days to pay BillFloat back. The service is meant to work with obligations like utility and cable bills, not mortgage or car payments. Most payments range from $70 to $250. The company also does not support recurring payments. “We don’t want to force folks into situations where they don’t have control,” Gilbert says. Consumers pay anywhere from $4.95 to $10 per transaction, with higher-dollar and expedited payments incurring fees toward the top end of the range. There is no interest and no late fees. Billers pay a percentage ranging from 50 to 200 basis points for a payment they might otherwise have to go through a collections process for. “What we bring to the biller is payment certainty,” Gilbert says.

To move money electronically, BillFloat uses a mix of direct links and arrangements with other networks, like MasterCard Inc.’s RPPS system. The company has direct connections to “less than 100” of its billers’ accounting systems, Gilbert says, but has a dedicated team working on setting up more. “Nothing is more powerful than direct relationships,” notes Gilbert. BillFloat also works with billers to feature the company on its Web sites to encourage hard-pressed customers to use the service. To collect from consumers, the company uses the automated clearing house to debit their accounts.

Observers like James Van Dyke, president of Javelin Strategy & Research, a Pleasanton, Calif.-based firm that follows the online bill-pay market, say BillFloat may be on to something. “It’s a very intriguing idea,” he says. BillFloat’s launch may be well-timed, Van Dyke says, given the “bumps” the economy has run into as it struggles to recover from a long and deep recession. “It’s the instant-credit thing,” he says. Gilbert says BillFloat is designed to be an alternative to account overdrafts and payday loans, both of which are more expensive credit options. For the 47% of Americans living paycheck-to-paycheck, such options are “a total rip-off,” says Gilbert. “We’re going after pay-day lenders and the unscrupulous banks,” he says.

Van Dyke also points out that there is typically very little fraud associated with online bill pay. But just to be sure, BillFloat authenticates users by asking for names, addresses, and Social Security Numbers and comparing them against information in various databases. It also asks for verification of employment and looks at bill-payment history. “We’re most concerned about the consumer’s ability to pay us within 30 days,” says Gilbert. As a result, “not everyone gets through this,” Gilbert says, and the company rejects some applicants.

For the near term, BillFloat plans to expand its use of PayPal’s Platform X, an open platform PayPal introduced last fall. The company currently uses it to run ACH transactions, but Gilbert sees further applications. He says, for example, that the company is investigating other ways for consumers to pay back their short-term loans, including cash at walk-in locations, debit cards, and PayPal.

Gilbert says the company will also concentrate on major billers. As a consequence, BillFloat will not be for people who need to put off paying, say, a local lawn service. In this way, the company, with its current head count of 14, avoids having to cut paper checks to reach tiny billers that can’t receive electronic remittances. “We are focusing on the type of bills you’ve got to pay because the termination of services would be quite impactful,” says Gilbert.