New Service Launches to Let Cash Customers Pay Online Merchants

A startup processor on Monday launched a service intended to allow consumers to pay online merchants with cash. Retail Expansion Network Inc., Oakland, Calif., says its PaidByCash service will attract consumers who are reluctant to use credit cards online or who don't have bank accounts, and will be cheaper for them to use than alternatives such as prepaid cards and money orders. It will benefit merchants, the company says, because it will deliver new customers looking for cash-payment alternatives and same-day shipment of products at the same time. Unlike competing alternative payment products, the new service requires little integration into online retailers' existing checkout systems, the company says. “We have a low-cost, low-impact option,” says Michael Marubio, chief executive of Retail Expansion Network, which was incorporated only 14 months ago. Consumers use PaidByCash by opting for a cash option at the retailer's checkout page. This redirects the consumer to the PaidByCash site, where she enters her zip code and receives a 14-digit payment code for a “virtual” prepaid MasterCard and a list of nearby locations where she can go to load value onto the card. Retail Expansion Network has recruited 49,000 The Western Union Co. locations so far through a deal with the money-transfer company, and expects another 12,000 to come live shortly. Once she returns to her computer, the consumer revisits the PaidByCash site to verify the value load and to receive a MasterCard account number and card-verification value, which she uses on the online merchant's site to completes her transaction. Current fees to the consumer include a load fee of $3.95 or $4.95, depending on location, and a $2 monthly account fee for accounts open longer than six months. Merchants pay normal signature-debit interchange, which Retail Expansion Network collects as issuer. The fledgling company has signed acceptance agreements with 40 e-commerce sites for its launch, though Marubio says another 150 will begin accepting the service over the coming months. Merchants feature on the service's site include Second Life, Giftbaskets.com, and drugstore.com. The company also expects tens of thousands more value-loading locations to become available later through deals with MoneyGram, and prepaid processors InComm and EuronetWorldwide. The MoneyGram agreement features a virtual MasterCard like that used with Western Union. The other agreements will involve an actual physical MasterCard plastic that consumers can buy and load at retail locations, Marubio says. With the physical cards, the service doesn't generate a payment code, since this is printed on the cards. Current locations in the Western Union network include those of Safeway Inc., The Kroger Co., Kmart Corp., and Rite Aid Corp. Marubio had expected to launch PaidByCash last fall, but the introduction underwent a four-month delay, during which the card brand changed from Visa to MasterCard and the bank holding the prepaid accounts shifted from US Bancorp to First Bank of Delaware. Marubio refuses to say what held up the launch and will not go into specifics about the changes, other than to laud MasterCard. “I'm amazed how entrepreneurial MasterCard is for a Fortune 500 company,” he says. However, he adds, “I'll probably be working with Visa in the future.” Retail Expansion Network estimates its market at around 100 million consumers, including people who are close to their credit limits, who are fearful of entering card details online, who prefer to pay by cash, and who don't have either a card or a bank account. The market for cash payments online, the company says, is currently served by money orders and prepaid cards. Marubio says these alternatives are more expensive than PaidByCash. Company estimates peg a U.S. Postal Service money order at $5.20, with prepaid plastic costing $9.95 to activate, $4.95 in monthly fees, and $1 per transaction. Ordinary money transfers, meanwhile, cost $7.95 up to $14.95, the company says. Asked whether online merchants might object to paying signature-debit interchange for what he is promoting as a cash transaction, Marubio says, “We haven't heard a lot of complaints. If you look at their other [non-card] options [for cash customers], there really aren't any.” PaidByCash, he says, allows consumers to load an exact value into a prepaid account, while offering the chance to get merchandise shipped immediately instead of waiting for checks and other instruments to clear. Merchants, meanwhile, don't have to process money orders, on which it can take two weeks between the time the order is received until cash is in the merchant's account. Also, on refunds, orders taken with money orders require checks to reimburse customers. “I'm stunned at the amount of refunds on Internet shopping,” says Marubio. With PaidByCash, refunds are credited to the MasterCard accounts according to the network's rules. While some observers point out that anything that interrupts the checkout process or inconveniences the customer will lead to abandoned transactions, Marubio says he's unconcerned. “If you compare us to going out to get a money order or a cashier's check, or going down to the store to buy [the item], we're a much superior service,” he argues. “We're cheaper, have broader acceptance, and you get your [item] shipped today.”