ccording to a recent report by the Center for Financial Services Innovation, up to 22 million Americans are unbanked, meaning they do not have a basic checking or savings account, and millions more are underbanked. But unbanked doesn't mean unbilled. IPP of America Inc. provides an electronic consumer-funded cash bill payment service to reach this growing market.

Gwenn Bézard, Research Director of the Aite Group LLC and author of a recent research report on the opportunities in walk-in bill payment, said that in 2004, of the 18 billion bill payments made by consumers, about 500 million were made in-person, a little less than 3%. That 3% is substantial; in the United States the walk-in bill payment industry generates about $1 billion in annual revenues.

Established in 1994, IPP of America is the largest national network of independent neighborhood-based payment centers, currently servicing more than 3,000 retail locations in 32 states, and processing over $50 million in payments, or 700,000 transactions, every month.

It has tapped into a growing and underserved market; by 1999 Inc. magazine listed IPP as one of the 500 fastest-growing private companies in America. According to IPP's Executive Vice President Alex Cooper, IPP has a 40% annual growth rate. Headquartered in Fairfield, N.J., IPP services an underbanked population that represents nearly 75 million individuals with a buying power of greater than $650 billion per year.

Through a point-of-sale-activation (POSA) terminal, kiosk or personal computer with an Internet connection, IPP-authorized payment centers offer a range of alternative financial services including electronic bill payment, prepaid long distance, prepaid wireless coupons, prepaid home phone, prepaid debit cards, wireless phone activation, money transfer and merchant services.

"There are some terrific natural synergies between offering merchant services on a POSA or PC terminal and bill payment processing," Cooper said. "By combining these services on one device, the reseller or distributor can add considerable value to their offering. A single platform means lower support costs, a faster ROI on the hardware investment and easier financial management. For the retailer it also means less phone lines or network connections and minimizes bank accounts for funds collection and reconciliation issues.

"Merchant services are a commodity. Bill payment services can provide additional value to your offering. Everyone is looking for a way to differentiate themselves and to ensure a long-lasting relationship with their merchants. If you can offer a new revenue stream that also drives traffic to their stores, that's a real foot in the door," he said.

IPP of America currently works with 25 different ISOs, using a buy rate model. "Revenues for ISOs can vary, depending on the store's volume," Cooper said. "There are fees between $0.50 and $0.75 per transaction that ISOs split with the merchants. It can be very lucrative."

IPP signs up independent retail merchants to become an authorized IPP Payment Center to process consumer funded payments. These locations include supermarkets, convenience stores, pharmacies, check cashers and wireless stores. Each retail location is connected to the IPP payment network by either a personal computer through the Internet or POSA terminal such as VeriFone's Omni 3750.

Customers come in with their bills and cash. The store clerk enters the bill payment transaction into the computer, collects the amount to be paid along with a small convenience fee and issues a computer-generated receipt.

IPP tracks each payment, provides bilingual customer service via a toll-free number, resolves any disputed transactions and posts most customer payments within one to two banking days. It also offers real-time and near-time payments posted within 30 minutes for many vendors.

"The walk-in-payments market is less saturated than the online bill payment industry and is attractive for both prepaid wireless distributors and merchant service providers," Cooper said.

"IPP also offers all the prepaid long distance and wireless products from all the major carriers like Verizon, T-Mobile, Boost and Cingular. Unlike other products that a merchant sells in their store, with bill payments and wireless prepaid services, there are no inventory costs or shrinkage, and offering the service can painlessly create an added revenue stream and attract customers back into the merchant's store month after month."

According to Bézard, walk-in bill facilities attract three main types of consumers: 1) unbanked consumers: U.S. citizens and legal and illegal immigrants who cannot afford or do not want to be banked (representing 50% of all walk-in bill payments); 2) low income banked individuals who live on a paycheck-to-paycheck basis, have frequent cash flow problems and use walk-in payment options often to pay their bills at the last minute (representing 40% of walk-in business); and 3) emergency users: Low to middle income banked individuals who use walk-in payment options occasionally to pay overdue or emergency bills (representing about 10% of the user base).

IPP of America has carefully targeted areas where these populations occur in the greatest numbers, concentrating heavily in cities and in areas with large Hispanic populations, although Cooper said, "Eventually, we want to be everywhere a customer is. If someone is walking into a store with cash in hand to pay a bill, we want to be there."

In addition, IPP of America provides bilingual help-desk staff to meet the needs of this marketplace.

"Ten years ago, we saw the potential opportunity with the underbanked consumers and introduced the nation's first electronic consumer-funded cash bill payment service," Cooper said. "Today, we see everyone converging on the same consumer. We'll be the first, again, to offer money transfer services, cash loads to prepaid debit cards, same day 'just in time' payments, merchant services, online catalog orders and bill payment on kiosks and POSA terminals."

The industry has become more competitive as new players enter the field to try to earn their share of this growing market. Cooper suggested that those choosing a payment processor do a fair amount of due diligence. "Any store can sell long distance and wireless minutes," he said. "And it's natural to want to add bill pay to meet the needs of those same consumers. But in most states you cannot accept money to process someone's bill payment unless you are a licensed money transmitter.

"And, in addition to state statutes, federal regulations like the Patriot Act and Bank Secrecy Act, and oversight agencies such as the U.S. Treasury's Financial Crimes Enforcement Network and the Office of Federal Assets Control come into play. Sending money on behalf of another person triggers all types of anti-money laundering legal issues.

"It's wise to choose a processor that has a bullet-proof compliance program, a processor that is licensed and can demonstrate proper compliance with all applicable regulatory requirements."

"More than ever, network size, reputation, financial strength and compliance matter," Bézard agreed.

"Finding a processor that addresses the merchant's local market is also important. "There are national billers like wireless companies or credit card companies, but everyone has to pay their local gas, electric, phone and cable bills," Cooper said.

"T-Mobile may be strong in one market, but weak in another. Time Warner Cable in Dayton, Ohio is not the same as Time Warner in New York City. We make it easy for both the merchant and ISO because our system manages each terminal's biller list so that a south Philadelphia merchant will see the billers for their coverage area and north Philadelphia gets their own list. Less mistakes, less confusion."

Finally, he said, look for a processor that has financial stability, a track record and insurance. He pointed out that in April 2004 state regulators forced Cashpoint, a N.Y.-based bill payment processor, into Chapter 7 bankruptcy. "As much as 75 million of consumer bill payments were missing," Cooper said.

"Billers lost millions, and now they're leery of partnering with unproven processors. The merchants' and the ISOs' reputation is as much at stake as ours."