Green Dot seeks a middle ground with cash users

Andrew Harrer/Bloomberg

The shift to digital payments since the pandemic hit has been dramatic and substantial. But it hasn't been comprehensive, and companies such as the prepaid card issuer Green Dot are adding services to appeal to consumers who prefer to remain underbanked.

"You aren't going to eliminate that group of consumers who use cash," said Jamison Jaworski, general manager and senior vice president of retail at Green Dot. 

Green Dot is attempting to gain market share among consumers who have a smartphone but not necessarily a bank account. It partnered with the electronic billing company Paymentus to support a cash-digital hybrid payment system that enables consumers to use paper money to pay monthly bills electronically and make other digital payments.

The model is similar to that of PayNearMe, which allows consumers to make e-commerce purchases by paying in cash at a nearby merchant such as a 7-Eleven, CVS, Walmart or Walgreens instead. In that example, the e-commerce seller is made aware of the payment within minutes of it taking place. 

In the Green Dot example, after consumers pay in cash for bills or other products such as subscriptions, the payment gets applied to a Green Dot stored-value account. Consumers use the Green Dot app on their smartphones to generate a QR code that allows a cashier to complete the transaction. The consumers' smartphone is not linked to a bank account, necessitating the Green Dot option. The consumers aren't necessarily buying goods from the retailer, though the merchant benefits from extra foot traffic.

"For our cash-preferred customers, this system creates an instant digital paper trail of their cash payment. It's a payment option that can be notoriously hard to track by other means," said Nicole Haskins, vice president of electronic billing and payment solutions for Paymentus. 

The Paymentus partnership is part of a broader outreach to underbanked consumers at Green Dot, which recently partnered with the account aggregator Plaid to connect Green Dot's users with other fintechs.   

"This is a meshing of the cash-based customers and the things in their lives that they are doing digitally," Jaworski said. 

Trends show a clear migration to digital forms of payment, with 62% of U.S. consumers using two or more forms of payment in 2022, up from 51% in 2021, according to McKinsey. In late 2022, 41% of Americans said none of their purchases are made in cash, up from 29% in 2018 and 24% in 2015, according to the Pew Research Center.

But cash use, while sliding, is still too substantial to deemphasize. Fourteen percent of U.S. consumers paid only with cash in late 2022, Pew reports, down from 18% in 2018. But 59% use cash at least once per week. Nineteen percent of all U.S. payments are made in cash, according to The Federal Reserve. 

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And 19% of U.S. consumers are either unbanked or underbanked, according to the Federal Deposit Insurance Corp., meaning those consumers have limited or no access to a traditional bank or credit union. That also means they likely do not have a bank-issued payment card and are more prone to use cash, checks or money orders.  

For recurring bills — an often-cited use case for the model firms like Green Dot and PayNearMe are offering — 3% are paid by cash, according to Aite-Novarica. That's a low percentage, but it's still more than 465 million bills out of the 15.5 billion bills Americans pay annually. ACH is the most popular method at 45%, and checks are No. 4 (just behind credit and debit cards) at 15%. 

"Most consumers want more payment options when it comes to bank bill pay," said David Albertazzi, director of retail banking and payments at Aite-Novarica. As an industry, we've been talking about the decline of checks and cash for a long time but it still represents a significant portion of consumer bill payments, so providing additional options for these methods of payments make sense."

Consumers are likely to have a smartphone, so cash payments can be partially digital. About 311 million U.S. residents have smartphones, according to Statista, a substantially larger number than the 264 million Americans over the age of 18. 

Lingering cash reliance has at times sparked political squabbles involving digital payments. Amazon added cash options for its Go checkout-free stores, for example, following regulatory pressure in New Jersey, Pennsylvania and elsewhere. And U.K. authorities have pressured banks to ensure access for cash-dependent customers. 

"Cash remains an important bill payment method for many consumers," said Michael Kaplan, chief revenue officer for PayNearMe, which recently expanded to support cash payments for online betting. 

Economic pressure could create demand for cash payment options, Kaplan contends. "In times of uncertainty a segment of consumers use cash as a means of staying in control of their budgets," Kaplan said. 

The ability of new innovations such as a digital dollar, or central bank digital currency, to improve financial inclusion is still muted, according to Kaplan. 

Digital assets such as CBDCs and stablecoins are often positioned as ways to bring more people into the financial system by reducing the cost of transactions and enabling underbanked people to make digital payments through decentralized applications, or payment apps that run on public blockchains. 

These innovations are still too early to have a big impact during the current cycle of inflation and slower economic growth, according to Kaplan. 

"We are a long way from central bank digital currency being considered a potential alternative to cash payments," Kaplan said. "The promise of CBDCs is interesting and potentially removes friction from the way people move money; however, unbanked and cash-preferred consumers aren't necessarily staying away from traditional pay rails because of friction. They are choosing to use cash out of necessity or preference."