Many people are in love with touchless payment possibilities of mobile wallets like Apple Pay or Google Pay. We forget that the wallets implicitly assume access to banking. People without debit or credit card are not the target market for mobile wallets. Sure, prepaid cards can be used too but those are often more expensive for consumer than cash.
Same implicit assumption about access to banking is also true for bill payment options. I am talking about every day, recurring bills like electricity, water, gas, highway toll (like EZ pass). The cheapest bill payment options are pay by check or log into a clunky website, create user id-password and pay using the bank account (ACH). Most utility type companies, especially if they are related to government like tollways, still want to charge fee for using a card.
Large number of Americans do not have access to traditional banking. So, no access to check, debit card or credit card. What are their mobile and electronic payment options? They often buy money order or use more expensive options like payday lender to make a bill payment. These are also more time-consuming options and burden the overworked, often not-so-technologically-savvy people the most.
What other options are available to underbanked people? Can we enable people to pay via SMS (Short Message Services aka text message)? Most of us have seen the political ads asking to text a message to a specific number for financial contribution. Or ads from not-for-profit organizations like American Red Cross asking to text a specific word to a specific number for fixed dollar contribution.
The same payment mechanism (USSD or Unstructured Supplementary Service Data) can be used by any biller or merchant to request payment via text. This payment option is extremely popular in developing countries in Asia, Africa and South America. The simplicity of the process is due to the fact that user doesn’t need a smartphone or access to wi-fi to use this service. In summary, the barrier to use the service is extremely low.
So why don’t we have similar options in USA? Is it because everyone has smart phone and is leveraging payment apps? In reality, far more people have smart phone than access to banking. So, app-based solutions, which often need a card or bank account are of no use to the unbanked population.
With simple SMS based payment, no banking access, no card, no smart phone, no wi-fi needed. In fact, similar services already exist in US though adoption is low. Many billers offer antiquated web portals which are often not optimized for mobile browsers. Older bill payment companies may tout payment via text but what they mean is sending a link for making card-based payment at a website.
When a consumer pays a bill via SMS, money can be deducted from the user’s prepaid services or added to the bill. This payment service is free to the consumer (outside of US) and should be. The merchant or the service provider receiving the payment will pay a fee to the text-to-pay platform operator.
This payment option is beneficial for the consumer- it’s easy to be reminded for upcoming payment, one can make payment from anywhere, does not need to create yet another userid-password, does not need any banking product- in essence it is a low friction, low-cost option for unbanked segment.
For the biller, the benefits are reduced late payment, upgraded mobile payment option without creating an app or mobile optimized version of the clunky web portal, reduced paper billing, reduced volume of money order and other paper-based payments. Text to payment is a great option for any recurring billing. Our politicians and beloved not-for-profits are the early adopters of text to payment, but it’s time that every day service providers and merchants start providing the same options to millions of unbanked in the US.