Over his quarter century in finance, Max Haynes learned how to innovate in industries not known for rapid change.
Mr. Haynes expects to draw on that wisdom as he guides PaySwag to success in the collections industry.
Entrepreneurship, and the desire to encourage others to pursue it, bit Mr. Haynes early in life. Armed with a degree in Entrepreneurship and International Studies, Mr. Haynes served as both founder and host of Business Talk Radio, a nationally syndicated program.
He then served as the executive director of the Association of Collegiate Entrepreneurs for three years, running conferences which encouraged entrepreneurship worldwide. Steve Jobs, Mark Cuban and Ted Turner were featured speakers.
In 1991, Mr. Haynes began a long run in the banking industry, working with Citibank, Mastercard, and Visa, with a particular focus on financial issues which impacted young adults.
It was his experience in this stage of his career which helped shape Payswag’s development, he said.
“Since college I have been pushing the envelope and saw the banking industry was ripe for massive change,” Mr. Haynes explained.
While Mr. Haynes worked closely on initiatives which affected younger adults, an experience which serves him well as he develops PaySwag, he saw groups of people left at a disadvantage no matter which industry he was working with. In real estate it was young adults and people from Hispanic cultures. With autos it was the underbanked and people from Hispanic cultures again.
“Around 2009 or 2010 I began with a simple premise – wondering if we could use technology to minimize defaults and maximize engagement while improving the lending space.”
What particularly irked Mr. Haynes was the large group of people who cannot get auto financing to this day, not because their credit is necessarily bad, but because they have minimal credit history. More people do not want to open a bank account or set up automatic deductions.
Armed with this idea, Mr. Haynes contacted Mark Miller, a Silicon Valley veteran who was semi-retired. Mr. Miller saw success employing technology in the automotive sector with Mr. Haynes at Car Loans Inc.
The pair began researching how to make it easier for people to pay their bills and reward them for doing so. Better communication would be a key element to this.
“We learned 50 percent of people do not regularly use e-mail,” – Max Haynes
“There is a huge problem with collecting from the unbanked,” Mr. Haynes said.
The problem begins with traditional collection methods, which start with mail. Yes, mail.
People, if you can even reach them via USPS, have a hard time remembering their loan number. But that is fine, because when you add the number of people who get the mail but know what it is and do not open it to the number who move frequently and never see it, you have a poor response rate.
“We know that 50 percent of car loan mail is returned as undeliverable,” Mr. Haynes said.
Mail is dying. Makes sense. How about e-mail?
“We learned 50 percent of people do not regularly use e-mail,” Mr. Haynes said.
“It was a stunning revelation.”
Mr. Haynes and Mr. Miller learned the key was to engage people through their smart phones, something almost everyone has, no matter their circumstances.
“We learned that most people have a smart phone – and a nice one,” Mr. Haynes said. “Even if they are struggling to pay their bills and they have high interest car loans, they have an iPhone.”
“Their window to the world is through their smart phone.”
PaySwag is not alone in recognizing the irreplaceable aspect of the smart phone. Mr. Haynes knows that. What companies across sectors struggle with is engaging with customers through their phones in a quick and effective manner.
Figure that out and the next challenge is how to scale the experience to 100,000 users, not just a few thousand.
PaySwag is taking a truly unique route. They are employing game theory.
Game theory studies how and why people make decisions. They are more likely to make a certain decision if they perceive it to have value, especially in relation to other available options.
If one option is perceived to be fun, people are more likely to choose it, so PaySwag decided to make paying bills fun, Mr. Haynes said.
“Why spend money on this,” Mr. Haynes asked rhetorically. “Because it works.”
Millennials are looking for engagement that is fun, Mr. Haynes explained. Fun and short in duration.
If you create enjoyable activities people can interact with and from which they can receive a reward, you may be on to something, Mr. Haynes suggested. What’s a few minutes on the subway or during a boring calculus lecture?
PaySwag has created a reward system where people generate points for watching short videos on financial literacy, playing games, or from interacting with the site in other ways. For example, people love uploading pictures of their car for points, Mr. Haynes said.
People can then spend those points for sports tickets and other items that are treats, and things they are unlikely to buy on their own. One of the most popular items people opt for is a five-dollar Starbucks gift card. Movies are another popular item.
PaySwag can customize a solution that easily integrates into a client’s system so they do not have to start from scratch, Mr. Haynes said. If the client licenses PaySwag technology, PaySwag will customize a rules engine based on that client’s preferences.
The PaySwag model keeps people engaged and they want to make sure they receive their swag, so guess what? They have incentive to keep their contact information up to date.
While this seems much better than traditional collection methods honed during the Taft Administration, many people do not intuitively get it. On both sides, Mr. Haynes said.
“My traditional banking peers don’t get. They say people simply need to pay their bills, they don’t need a pat on the back.”
“That has proved false.”
It has also proved to be cheaper, Mr. Haynes said.
“Asking someone struggling to pay bills to pay by calling and leaving messages is a completely ridiculous approach to paying debt,” Mr. Haynes said. “It is an inefficient business model. You can go to cities like Sioux Falls and see tens of thousands of feet of office space devoted to collections.”
Many on the other side do not initially get why someone is offering them free things just to pay their bills, Mr. Haynes admitted.
The tickets, movie, or double latte serve as bridge, and once the customer realizes you’re not Paulie Walnuts and they begin to interact, you can develop solutions which eliminates their debt and gets you the money you are owed. Money which you were ready to write off, all for the cost of a simple treat.
And sometimes the solutions are simple, Mr. Haynes said. People may have been having trouble making a payment on the first of the month but find themselves with extra cash on the fifteenth. Through a conversation a solution is found.
“People say millennials are lazy and spoiled,” Mr. Haynes said. “It’s not laziness. It’s the expectation of responsiveness.”
“They ask why should it be complicated to get a loan in the first place.”
Mr. Haynes believes the PaySwag model works for both private and public entities. In California, the unbanked owe billions of dollars in traffic-related fines. More than four million people have lost their licenses due to non-payment. Many still drive but hope they do not get stopped. Others stop driving and suffer economic consequences.
American hospitals provide $45.9 billion in care each year that goes unpaid. At any given time there is $1 trillion in subprime auto loans, a sector which can generate a 25 percent default rate. Forty percent of student loan borrowers are not making a current payment, Mr. Haynes estimates.
Engage the customer. Offer flexible payment options. Be mobile friendly. Things you should be doing anyway can do wonders for your bottom line.
“Adapt technology to make it fit into their world,” Mr. Haynes said.