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Joint interview series: Avangate & PayNearMe

Friday 1 July 2011 | 11:36 AM CET

PayNearMe is a cash payment network that enables consumers to pay with cash easily for a wide range of good and services. Consumers go to a local store, beginning with any of 6,200 7-Eleven stores across the U.S., and pay cash at the register for an online purchase, a loan repayment, a bus ticket, or any other number of transactions. CEO Danny Shader leads PayNearMe. Earlier, Danny led, the first consumer-to-consumer payment service that acquired in 1999, and Good Technology, Inc., which Motorola acquired in 2007.
Avangate enables software companies to sell their products online as well as to manage a distribution network in a way that is efficient, customizable and locally relevant. Specifically designed for the software vertical, Avangate’s scalable solution includes a full-featured secure eCommerce platform, a partner management system as well as a worldwide affiliate network. Avangate\'s expertise in the software business helps vendors increase product visibility on the Internet, maximize access to additional selling channels and improve overall software revenue.

Taking this interview:
Adriana Iordan, Product Management Officer - Avangate
Daniel Shader, CEO - PayNearMe

Avangate has recently joined forces with PayNearMe for the integration of a system which enables software buyers to order products online and pay cash or with a mobile phone. What does this initiative signify for the two companies?

Avangate: We are always looking for innovative ways to assist our clients and to help them serve their end-customers. We are eager to see the partnership with PayNearMe grow as their payment method becomes more and more widespread. What we liked about PayNearMe was that they’re not offering the classic COD, but a more advanced, more convenient way of paying with cash, to shoppers, vendors and to ourselves, as integrators.
PayNearMe: We are excited to work with Avangate, our first partner in the software and digital content distribution business. Although software distribution continues to shift from offline toonline, prior to PayNearMe there has not been a payment network capable of supporting convenient and effective online cash payments for digital goods. As a result, sellers of digital content have been unable to serve effectively the 25% of U.S. households that don’t have a credit or debit card and the many others who prefer to pay with cash.
PayNearMe is uniquely capable of enabling cash purchases for digital goods from Avangate. Our network offers real-time notification to merchants when payment has been made at a local retailer so that the goods can be released or unlocked immediately. Our technology platform also gives merchants a number of other unique capabilities. For instance, PayNearMe enables merchants to accept directly any payment amount from $0.00 to $1000.00 in penny increments. Merchants can print a detailed receipt at the retailer’s PoSto deliver custom messaging to consumers.To provide a seamless payment experience, PayNearMe also allows for deep integration into an on-line reseller’s payment flow, as we have done with Avangate.
In addition, with PayNearMe, consumers are spared from having to purchase pre-denominated, closed-loop stored value cards and potentially wasting unused value orbeing required to pay fees for prepaid, open-loop cards – fees which consumers might otherwise have spent on goods. There are no scratch-off PINs that require return trips to the website for the consumer to execute the transaction. With PayNearMe, Avangate releases the goods when payment in made – in real time. It’s that simple.

Many industry experts seem to hold the opinion that the end of cash is near. What is your opinion regarding this aspect?
PayNearMe:Cash is not going away. $1.2T in cash payments are made annually in the U.S. While this number is declining slowly, it will remain an important form of payment for many audiences. In fact, the Durbin amendment,which adversely impacts the interchange fees that subsidize free checking accounts, could reverse this trend and drive even more people into the cash economy. Unbanked and under-banked individuals, teenagers who don’t have access to plastic cards, and anyone else who prefers to pay with cash for a variety of structural or cultural reasons will continue to drive cash payments for decades to come.
Avangate: Totally agree. In a world led by cards and electronic payments, cash still has a word to say which cannot be ignored.

Could you provide our readers with some insight on the business model behind your offering?
PayNearMe is supported by transaction fees. PayNearMe’s fees are flexible and programmable, and they typically depend upon the nature of the business in which the merchant operates. Merchants can pay these fees, the consumer can pay them, or a combination of both. The fees can be fixed or variable, or both, as well. Additionally, for payment aggregators, we offer wholesale pricing that enables these businesses to earn margin on payments they facilitate.

With PayNearMe, US consumers can use their mobiles to pay for online software purchases. Technically, would this qualify as an online payment, offline or else as a mobile payment? Where does the mobile channel fit into the PayNearMe model?
PayNearMe operates at the intersection of online and offline: enabling consumers to make an offline payment in cash to execute an online -- or other remote-- transaction. This transaction might be for digital goods as in the case with Avangate, a loan repayment, a purchase from a catalog, a transportation ticket, or any other transaction where cash is required. Mobile phones are used in PayNearMe as “tokens” – identifiers that point to instructions that have been staged in our system and are awaiting execution upon payment. Tokens might be barcodes rendered on the screen of a mobile phone, the mag-stripe on a free PayNearMe Card that is bound to a pending transaction via a mobile phone, or a PayNearMe Barcode printed directly on a PayNearMe Slip or even on a utility bill.

Are there any major differences you’ve noticed between the European and the US markets as far as perceptions and approaches to payments go?
There are in fact differences, at least when it comes to online shopping behaviorand this is the perspective that we see. We are talking about regions and countries where cash proliferation is even more widespread, with some countries charting it at number one or two in terms of preferred payment methods. In some Eastern European countries, Internet penetration is high and so is ecommerce, but people still prefer to pay with Cash on Delivery. This will probably change with time, but cash will still play a major role. A similar situation is in Asia as well, for instance in China or Japan.
There are also differences between countries non related to cash. For instance, direct debit (ELV) is very popular in Germany, iDEAL – allowing direct online bank transfers is also high on the shoppers’ preference list in The Netherlands and the list could go on.

For years, cash-on-delivery has been a frequently used or the preferred payment option in many European regions (especially Central and Eastern Europe). How popular is this payment mode in the US? Could you provide us with some statistics that confirm this?
PayNearMe: For the vast majority of commerce in the U.S.,cash-on-delivery is not practical. The COD model presents a number of significant disadvantages when compared to the PayNearMe system. With COD, the seller is typically charged each time the COD provider attempts a delivery regardless of whether the consumer is home or actually pays. Furthermore, if the consumer does not accept the item or fails to pay, the business absorbs the cost of return shipping.
In contrast, with PayNearMe, the seller is notified in real-time when payment has been made so that they can ship the goods. PayNearMe guarantees the funds to be 100% good, so all of the aforementioned problems with COD are eliminated. In addition, PayNearMe can be directly integrated into the sellers’ systems, reducing the need for data entry and the possibility of errors. Finally, sellers can print customized messages for their customers right on the store receipt.

From your perspective, what are some of the consumer/merchant benefits from an online payment – centered approach?
Avangate: The most important benefits from a merchant point of view – besides the convenience offered to the end-customer – are the zero risk of chargebacks and the fact that the settlement occurs in real time – once the payment is made, everything happens automatically, without human intervention or the need for an additional approval layer.
PayNearMe: Prior to PayNearMe, there was no easy way for consumers to use cash to buy something online unless they purchased a GPR, often an expensive proposition. We created PayNearMe to make it easy, convenient, and inexpensive for consumers to use cash for remote transactions of any type. With PayNearMe, simple or complex transactions can be completed at a local store in less time than it takes to purchase a carton of milk -- 60 seconds or less.
For merchants, we’ve opened a payment channel to reach and better serve the sizeable audience that prefers to pay with cash: the 25% of American households that do not own a credit or debit card representing 60 million adults; teens; and privacy- and security-oriented consumers --all of whom view cash as their preferred payment option. By integrating with PayNearMe, merchants can reach these audiencesandgain a national payment footprint overnight. Furthermore, they absorb no risk of fraud or chargebacks, and they’re notified in real-time when payments are made. The real-time nature of our platform is unique, and gives businesses a number of additional capabilities: they may authorize or decline an offline payment in real-time (for instance, in case they have stocked-out of an item), print a customized message directly to a customer right on the register receipt that contains transaction-specific information, or get creative about how payment fees are charged.

Many companies prefer to focus on adding as many payment options as possible, while for others it is more important to support only those systems which are most relevant to their business. What`s your strategy in this respect?
Avangate: Our strategy is a combination of the two: supporting systems relevant to our business involves adding as many payment options as possible. We are here to offer software vendors localized “packages” of payment options, currencies and ordering interface languages that cater optimally for the markets they are targeting. If we look at one metric only, the shopping cart conversion rate, there is a clear and direct connection between this and the payment methods we introduce or the languages we add.
PayNearMe: To reach the 25% of American households who are unbanked or under-banked, most teenagers, and all others who prefer to pay with cash, merchants must offer a cash payment option. For all of the reasons enumerated previously, PayNearMe offers the only real-time, well-integrated payment network that businesses can use to accept cash payments of any denomination conveniently, easily, inexpensively.
Here’s another way to think of it: no one would open a business in the real world without accepting cash; why would they do so on-line?

The availability of a range of payment methods serves a variety of needs. Because of that, what we are likely to see in the near future is…
Avangate: Pretty much what I covered at the previous question. I’m not going to go into details here of what it takes to be competitive in this business – but I will say that the payment methods do play a key role. Besides the classic debit and credit cards, PayPal, wire transfer, we have to be constantly on top of developments in the payment industry and integrate with alternative options, eWallets, electronic wire transfers and so on. PayNearMe is part of this picture.
PayNearMe: Smart businesses that want to maximize their revenue potential will open new payment channels that meet the needs of all of their specifically available customer segments. For the sizeable under-banked, teen, and privacy- and security-oriented markets, cash will continue to be the preferred form of payment. PayNearMe is uniquely capable of meeting the needs of businesses that want toaccept cash easily, conveniently, and inexpensively from their customers.

How does your company contribute to the development of the payment industry and what challenges has the company faced in this respect until now?
Avangate: We are offering our clients’ customers the opportunity to pay with their preferred payment method, no matter where they are in the world. This means providing a mix of cards and alternative methods that work well for as many markets as possible. Time and time again we get this feedback from our customers: “Avangate has many payment methods and that is important to us as we sell products globally but have to act locally”. Having just a few payment methods in the cart is not enough anymore. We are also contributing to industry efforts by integrating with new, up-and-coming methods such as PayNearMe.
PayNearMe: PayNearMe reversed the current prepaid model. Rather than asking a consumer to load funds and subsequently “push” them to the merchant, with PayNearMe, merchants stage a transaction before the customer makes a payment. This subtle difference makes many processes easier and less expensive for the consumer. It enables a consumer to pay cash directly for an online good without having to incur any of the fees associated with prepaid cards. PayNearMe also removes the hassle of scratching off a PIN and returning to a website to complete a transaction. Finally, our real-time, bi-directional communication between the merchant and payment location uniquely enables a broad range of capabilities, such as variable pricing that takes into account the gross margin of the underlying transaction, customized printing on receipts, and other capabilitiesnot described earlier such as bulk-staging, multi-party settlement, and complex fee splitting.
We have worked hard to build our platform on both the merchant and retailer sides of our business. For merchants, we have developed a rich development platform that supports lightweight or deep integrations across industries and that includes all of the capabilities previously described. On the retail side of our business, we’ve integrated into 7-Eleven’s PoS infrastructure so that a broad range of businesses can accept payments at 6,200 stores without requiring any incremental work by 7-Eleven.

Where is your company now in terms of market coverage and where do you see your company heading in the future?
Avangate: We are a global company supporting global businesses. Our vision is to be the first choice in multi-channel sales integration for the software industry. This means helping software companies integrate direct and indirect, online and offline sales channel into one platform and get real time visibility and control over global sales.
Besides the integration capabilities, we offer companies the necessary tools to address each channel and each market based on end-customers’needs. As far as the payment arena is concerned, we are continuing to add more methods to our portfolio – especially local popular ones. In today’s world of customer empowerment, offering buyers their favorite payment method increases customer satisfaction and ultimately drives more revenue. Avangate is also looking at extending the range of payment methods with subscription capabilities, plus micro and mobile payments.
PayNearMe: We currently support merchants in e-commerce, debt collection, money transfer, transportation, international mobile top-up, and bill payments, among other verticals. We expect to gain share in these verticals while we expand our platform to support an ever-broader range of companies who wish to cash-enable their businesses.