Milk and a Fridge: Cross-border Bill Payments – A Developing Market
One of the more interesting aspects of joining Glenbrook is the essential need to stay up to date with new market developments and product enhancements. (Oh, the luxury to focus on what’s new and happening in payments!)
One of the areas I’m interested in is bill payment – particularly developments that are adding efficiencies to the bill payment process and facilitating consumer purchases. One of the more intriguing ideas is cross-border bill payment, as an alternative (or supplement) to international remittances,a way of getting money to the family back home. Instead of simply sending $250, you could send 3 liters of milk and a down payment on the new fridge!
Bill payment across borders has the same demands as paying domestic bills – you’ve got to link the funds to the correct account, make sure the money gets there and credited on time and provide the ability to pay for late charges when it doesn’t. On top of that, add foreign exchange conversion. A little-known company called iSend is now making this possible through a series of direct links with major utilities (phone, gas, electric) in target countries. At present, bills can mostly be paid in Latin America but the company plans to expand to other geographies. iSend sells its services to licensed money service businesses and their agents. These retail outlets are often check cashing locations, small supermarkets, and other venues frequented by migrants, that want to offer value-added options to their traditional remittance sending customer base.
Until now, the core product for iSend has been mobile top-up services. Mobile top-up allows a family member to send “minutes” on cellular carrier networks back home. A number of companies provide cross-border mobile top-up; the extension to cross-border bill payment is more unusual.
I recently spoke with Steve LaBella, president and CEO of iSend. He referred to these types of transfers as “directed remittances”. Directed remittances allow the remitter to remotely exercise more control over how the funds are spent. Being able to make sure the electricity bill is paid also provides additional peace of mind to the remitter that essential needs are taken care of. Sending minutes ensures that the remittance receiver can stay in touch with the sender. LaBella also feels that these types of transfers are a more efficient way to get value from one world to another than simply sending cash.
Store-specific international gift cards fit in the same category, as they allow the remitter to send a specific amount to the grocery store or pharmacy and ensure that the funds are spent on the designated category of goods. The receiver has to go to the store to pick up the funds, usually in the form of a physical card at the store. The merchants like it because the consumer is in the store with “new” money.
These sorts of transfers require the additional coordination and integration with the utility, bill payment, and retail companies. Pricing varies depending on the arrangement with the receiving biller or retailer but fees are paid by the sender – not the receiver. For gift cards, some merchants don’t charge but others have a tiered structure depending on the value of the card.
Another interesting aspect of this new offering is that it is being offered in the period leading up to the new Regulation E requirements mandated by Dodd-Frank 1073 for consumer-initiated transfers. These transactions appear to fall within the classic closed loop paradigm in which in which the rules for exchanging payments are agreed upon by a limited number of players. Having the closed loop environment greatly minimizes the provider’s potential liability.
Bill payment and gift card products are nearly ubiquitous for domestic use now – but only a few providers in the U.S. appear to have some international bill payment and gift card options today. These include PayXchange, Sendmoney24, Vesta and Western Union.
We all know the international remittances market is large and growing – not surprising given the number of immigrants, family ties and transnational friendships that exist. But the desire to control how remittance dollars are spent, and to ensure that family needs in other countries are taken care of, should make this sector an interesting one to watch.