May 25, 2016
The LTP team had the pleasure of interviewing Randolph Pentel, Chairman at SoPayMe, a real-time payments provider for consumer (P2P), retail (P2B), B2B or virtually any other type of payment between two parties. Mr. Pentel shared his vision of the company, the value it provides to customers and insights on the state of real-time payments.
An important part of the discussion was dedicated to the important transitions the payments industry has passed from the time Mr. Pentel’s family came into the business in the 1970s. We have also touched upon the interest from banks/investors to develop real-time payments systems and the company’s plans on providing cost-efficient, cross-border real-time payments. Here is the transcript of the interview with Randolph Pentel:
LTP: Could you please tell us about SoPayMe and the services that the company provides?
Randolph Pentel: SoPayMe (SPM) is a FinTech startup benefitting from four decades of financial industry experience. The company’s backbone will be built on an in-house, secure payments processing platform that rides on trusted Fed Reserve rails and processes real-time transfers of collected funds.
The front-end of the platform is a mobile wallet and optional smart card that utilize tokenization, encryption and multifactor authentication so secure payments can be made anywhere, on any POS and on any device.
To protect its customers, SoPayMe does not transmit customer financial data to, or from, the merchant. Further, SoPayMe’s platform is designed to facilitate the integration of other valuable services such as shopping apps, self-checkout, real-time offline shopper data and ad campaign metrics, and the delivery of in-store, point-of-product, shopper-specific advertising.
LTP: Who are your main clients and what’s the primary value that the company brings to them?
RP: Merchants who range from mom & pop stores all the way up to big-box stores, convenience, pharmacy, fuel, grocery, dining as well as other retail and retail service companies. Additionally, consumers that shop at any of these merchants are potential SoPayMe clients.
SoPayMe reduces merchant payments transaction fees, helps mitigate costly data breaches, increases shopper loyalty and merchant revenue, as well as helps to keep costs low to the customer.
Merchants utilizing the SoPayMe platform will never have access to shoppers’ financial data. Therefore, merchants using SoPayMe become less fruitful targets for data hackers as breaches of merchant computer systems will not deliver the financial data sought. Hackers cannot steal what merchants don’t have; that is peace of mind for both the merchant and the shopper.
LTP: How large is the client base for SoPayMe services and who are some of the most notable clients that the company has?
RP: SoPayMe is currently in development mode, but there is considerable interest with major retail chains, and the Federal Reserve is actively supporting solutions that provide faster, secure payments.
In the US alone, there are more than 120 billion non-cash transactions every year. Walmart alone has over 11,000 locations with 260 million customers shopping on a weekly basis. Even relatively smaller chains have a considerable number of transactions. For example, ShopRite, a 250-store regional chain located primarily in the northeastern United States process over 238 million annual transactions. By reducing the transaction fees on every non-cash transaction SoPayMe can significantly impact the merchant’s bottom line.
LTP: What is the company’s competitive advantage in the market that potential clients should consider?
RP: The two main key advantages are: (1) our flat-rate price of only $.10 per transaction regardless of the dollar amount of the transaction. This results in (2) tremendous cost savings to the retail industry of up to 90% of current interchange fees and expenses.
Additionally, another key difference with SoPayMe’s payments solution is that we process our own transactions. Since we don’t use third-party processors, our vertical integration provides the lowest possible cost method. Further, our payments solution has the ability to deliver collected funds in real-time, on an interbank basis, with every major banking institution.
The SoPayMe platform is designed as a modular platform that allows for the easy integration of applications for in-store locationing, point-of-product advertising, banking and shopping.
Shoppers can save time and money when using the SoPayMe shopping app. Shopping is made easier with the item locator. Shoppers can scan their items, have a running total of how much they are spending and save time with self-checkout. Shoppers save money by getting ads, specials and coupons based on their preferences while in-store and within reach of the product, and their financial data is never shared with retailers.
Retailers profit via reduced transaction fees and related infrastructure, and elimination of costly data breaches. At the checkout, retailers are paid instantly with collected funds and they benefit from faster checkout and instant digital coupon settlement. By using SoPayMe, retailers enjoy increased customer loyalty, basket-spend and net earnings.
Through one of its strategic partners, SoPayMe can provide beacon-free locationing. This eliminates retailers’ installation downtime and the hardware costs associated with beacon technology. With beacon-free technology, advertisers can immediately deliver ads to every store in a retailer’s chain. Using predictive analytics and real-time in-store locationing, advertisers can deliver tailored ads to individual shoppers at the point-of-product. Advertisers receive shopper data and ad campaign metrics in real time. Shopper decision-making and return on ad-spend are made completely transparent via SoPayMe.
Financial institutions benefit as well from increased customer loyalty by providing automated cash-back deals with their merchant partners. Bank customers can make mobile deposits, cashless ATM withdrawals, account transfers, balance check and manage notifications for low balance (SPM customers can also elect to receive a notification at checkout, if the account they are using for making the purchase is insufficient to cover that transaction. Shoppers can set up their various bank accounts so that any shortfall can be immediately covered by transferring money from other accounts to make sure they don’t overdraft while making a purchase). By providing an application that saves customers overdraft fees, banks retain and attract customers.
Incremental innovation and lack of cross-industry collaboration have created a disorderly, muddled payment solutions marketplace. Current solution providers address only individual pieces of the problem pie. SoPayMe endeavors to provide a comprehensive solution that addresses every component of the path to purchase.
LTP: The Pentel family has quite a history in the financial services industry with your father inventing the first portable POS MICR reader for checks back in the early 1970s. You came into the family business in the latter 1970s before it was acquired and then founded SoPayMe in 2012; could you share some of the most important transitions in the payments industry over this period and the most meaningful milestones the industry has passed?
RP: That’s right, my father invented one of the first, if not the first, portable MICR code reader/scanner and patented it in the early 1970s. Concurrent with that, he invented and launched ChexSystems, and it took off nationally. ChexSystems is still the industry-standard for the new accounts industry nationwide (he also had developed a way to tie financial institutions into the sales process regarding check payments and he was clearly years ahead of his time). When we compare what the MICR reader looked like then with what is on the market now, they are almost identical in appearance and size.
In the 1980s, my brother Dan and I started Notification Systems, which has become the industry-standard in the large-dollar return check segment, processing approximately $2 billion worth of check notifications per month. Notification Systems has even surpassed the Federal Reserve in terms of volume of these returns.
As far as some of the most meaningful milestones in the industry, we have seen bank consolidations, interest rates rise significantly, then fall precipitously (and stay down) as well as numerous recessions and a thinning of the herd from the banking side. At the same time, we have seen dramatic changes on the payments side, with the introduction of widespread debit card use, as well as the imaging and exchange of checks. Where previously we used to see literally plane loads of checks physically being flown across the country daily, today that market segment has completely disappeared due in large part to the onset of imaging technologies.
We also see more electronic payments with many forecasts regarding rapid adoption and acceptance of the various types of payments; mobile payments, same-day ACH payments, along with significant shake-ups in the credit card payment space. As I watch these trends and changes in the market, I seek out ways where I can help lead the way into the future with not only electronic payments, but real-time payments, where collected funds move instantly no matter how much, where, or whether you are banked or not. Enter SoPayMe, or SPM.
LTP: SoPayMe is providing real-time payments processing services. Where do you think financial service industry is with real-time payments in general? Is it something that will take off soon at scale across various types of entities and use cases?
RP: The US has been pursuing real-time payments for some time now, led in part by the Federal Reserve. That path has been an exceedingly slow one, however, digital disruption and fragmentation caused by FinTech startups are creating considerable pressure on industry stalwarts.
Much of the problem lies in the cost of updating antiquated infrastructure. Traditional financial institutions are finally beginning to realize they cannot afford to wait any longer to spend the money on updating their infrastructure. They understand they must update and innovate or risk being disintermediated.
The pressure on financial institutions is starting to bear fruit. Recently, Early Warning, a risk management collaboration owned by Bank of America, BB&T, Capital One, JPMorgan Chase, BB&T and Wells Fargo, acquired ClearXchange, the P2P payments network operated by Bank of America, Capital One, JPMorgan Chase, U.S. Bank and Wells Fargo. As of today, clearXchange’s website indicates funds are received anywhere from 1-2 business days up to 5 business days.
SoPayMe anticipates that clearXchange’s payment processing timing will improve dramatically and with 250 million customers at its member banks, it has the ability to rapidly scale. Early Warning provides risk management solutions to a network of 2,300 financial institutions. SoPayMe believes that the collaboration between Early Warning and SoPayMe could be mutually beneficial to each other and our various customers. Our sister company, Notifications Systems, Inc. currently provides notification services to nearly every major bank, processing 2 billion dollars in large returned check notifications every month. At the time ChexSystems was sold, it was providing verification services to over 9,000 financial institutions. We believe our depth of experience in the financial services industry and our newer technologies that enable real-time payments and services across the entire path to purchase are a compelling combination.
LTP: Real-time payments are mostly being developed and deployed on a national level. How about cross-border real-time payments? When and under what circumstances do you believe international financial institutions will be able to introduce them?
RP: That’s a great question; especially since such a large volume of payments today is cross-border, especially with our friends in Mexico. While I cannot speak for the international banks, SoPayMe is developing its services to deliver cross-border real-time payments at the lowest rate as soon as possible.
LTP: Where do you see the role of distributed ledger technology in real-time payments? Are you looking into the technology to be implemented in SoPayMe services?
RP: Blockchain and distributed ledger technologies are the hot buzzwords today as it relates to security and protection. While I cannot divulge exactly what forms of protection SoPayMe will be utilizing, I will say that it will not be reliant on one form of technology or another. We will be continually pursuing the best and most effective ways of protecting the integrity of the system as well as the information contained within.
LTP: What can you say about the level of interest that corporate investors/banks have in real-time payments? What are some of key the issues or considerations for banks and governments regarding real-time payments?
RP: We have found a strong interest in the real-time payments area, coupled with an intense dislike for interchange fees. Some of the key considerations coming from people and retailers we have spoken to include treasury management (the velocity of the funds moving through their accounts), as well as reduction of fraud and the sense of being behind the power curve and playing catch-up if or when they discover they have been taken; information which, today, is days old by the time it reaches the right people for follow up and investigations.
LTP: Finally, what are some of the upcoming milestones you have for SoPayMe? Any plans to introduce new services in 2016?
RP: We have a number of internal milestones. One that we just attained is the certification for the Minnesota Angel Tax Credit program which affords qualified investors (individual OR corporate) a 25% tax credit on the amount of their investment after year one (for more detailed information, interested parties can go to www.sopayme.com, and click on the INVESTORS tab).
The one milestone we would like to hit as soon as possible is Industry-Standard, as we have done with ChexSystems and Notification Systems. We understand that it will take hard work, determination, and the delivery of the best service, at the best price, with the best people. But, we’ve done it twice before and we are prepared to do it again, Lord willing.