There’s an industry term for the one-quarter of American households where, through choice or necessity, members don’t have bank accounts or credit or debit cards: the “unbanked.” But just because these consumers don’t have formal relationships with financial institutions doesn’t mean they don’t pay a lot for financial services. Every time they cash a payday check or wire money to pay a utility bill, they have to shell out for fees—often exorbitant ones.
This naturally deters them from paying as promptly as they might otherwise. They also have a harder time buying things online, where credit cards rule. So creating easier, cheaper ways for the unbanked to buy things and pay their bills using cash ought to be a win-win: it helps consumers get what they need, and helps merchants and other payees collect their money.
That’s the idea behind PayNearMe. In September, the Mountain View, CA, startup launched a system designed to open up all kinds of remote transactions—online payments, money transfers, and loan and utility payments, for example—to the unbanked. Until today, that system relied on barcode-bearing paper slips that could be printed on home computers after an online transaction. Consumers took the slips to the nearest 7-Eleven store, where cashiers scanned them and collected the cash.
Today PayNearMe announced that it’s simplified its system to let users sidestep the paper slip, instead using their mobile phones and a series of text messages or phone calls to associate a cash payment with a given purchase. (Keep reading for the technical details.) “It turns out lots of people don’t have access to a printer, but they all have mobile phones,” says Danny Shader, CEO of PayNearMe, which was formerly known as Kwedit. “What we are announcing is a new way of doing business.”
PayNearMe also said today that it has collected a new round of venture financing—$16 million, from a group including Khosla Ventures, August Capital, and existing investors True Ventures and Maveron. It’s the company’s third and largest venture round—the A and B rounds totaled $6.3 million, of which it had spent less than half. “We have a very significant balance now with which to pursue our business,” says Shader, who formerly led mobile messaging company Good Technology, which was acquired by Motorola in 2006.
PayNearMe’s new system works like this: A customer completes a transaction by phone or online; let’s say she’s buying DVDs from Amazon (a PayNearMe user). She gives her mobile phone number to Amazon, which uses PayNearMe’s backend infrastructure to
