Cashless society? Not so fast

In late 2016 the FDIC released the results of a survey of unbanked and underbanked households which was undertaken in 2015, and while it is filled with information, fintechs need to be careful how they interpret the results, Danny Shader cautions.

Mr. Shader is the CEO of PayNearMe, a company he founded in 2009 with the goal of giving cash users the same convenience experienced by debit and credit card users when paying bills and making online purchases. In the ensuing eight years PayNearMe has grown into a network of 20,000 retail locations including 7-Eleven and Family Dollar Stores.

Danny Shader

Danny Shader

Bankless Times will dive into the report in greater detail in a future article but here is a basic primer:

The rate of unbanked households, defined for the survey as ones where no one had a checking or savings account, was seven per cent, down 0.7 percentage points from 2013, a decline the FDIC said was statistically significant. That equates to nine million households consisting of 15.6 million adults and 7.6 million children.

Perhaps more significantly a further 19.9 per cent of households were underbanked, meaning while they had some type of account, they also used alternative financial services such as money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans or auto title loans. The means 24.5 million households representing 51.1 million adults and 16.3 million children were underbanked.

Unbanked and underbanked rates were higher in households with monthly incomes that varied “somewhat” or “a lot” over the past 12 months. Unbanked rates for this group were 8.7 and 12.9 per cent, compared to 5.7 per cent for houses with relatively stable incomes.

While 19.1 per cent of households with stable incomes report being underbanked, 26.6 per cent of those with some fluctuations and 30.9 per cent of those reporting strong ones were underbanked. Unbanked and underbanked rates were also higher in households with higher, yet volatile income levels.

The report details that cash is being used at a slightly lower rate than it was two years ago. While important, it should not be taken as a sign of a coming cashless society.

“It is still the most-used method and remains important to people,” Mr. Shader said. “Cash users are an important business opportunity that merchants overlook.”

Important to the tune if $1.6 trillion, Mr. Shader added.

More cash is also in circulation now, Mr. Shader said. It is also the most frequently used retail instrument. Out of nine primary merchant categories cash was the primary payment method in six.

But cash is far from perfect, Mr. Shader said.

“If you pay cash, what do you do when you can’t shove it into a computer screen?” Mr. Shader asked.

His point was people can make important payments for rent, auto loans, or government fees but until those payments are confirmed they are not official. With PayNearMe users can set up the payment and receive a barcode which they save to their smartphone or print. They take the code to the nearest participating location with their cash and complete the process, complete with an electronic confirmation.

There are plenty of use cases where users would benefit from such an option, and PayNearMe is working its way through them, Mr. Shader said. People can pay their tax bills, and beginning in late 2017, Dallas area public transit users can load fares on an app or transit card. Look for cities to follow the Oklahoma Turnpike Authority’s lead by using the technology for toll payments.

“Our customers are businesses who are already collecting cash from people,” Mr. Shader said. “We are making it much easier for their existing customers to pay.”

Key to these possibilities are the digital capabilities of smartphones, Mr. Shader added.

Mr. Shader said PayNearMe’s core business continues to grow. Auto lenders, utilities companies and telco companies like Comcast are already accepting cash payments at PayNearMe network locations, and a partnership with Fidelity Express signed in 2016 adds 3,000 more neighborhood stores to the network.

On May 31, 2016 PayNearMe announced the acquisition of Prism Money, a consumer-focused financial management app which helps users track bank balances, billing amounts, due dates and check deposits. That allows them to offer in-app bill presentment to businesses and financial institutions. Users can also pay through the app via clearing houses, debit or credit cards, and prepaid cards.

Expect 2017 to provide similar news, Mr. Shader said.

“We expect to have some exciting announcements soon about retail partnerships.”