What The TIO Network Deal Really Means For PayPal

While cash’s death worldwide has been widely forecasted for the better part of 20 years, cash is still alive, well and, in many places, still king.  While the magic and promise of digital payments in all their various forms gets a lot of airplay — by the numbers, cash is running the table globally. Worldwide, 80 percent to 85 percent of all transactions are still carried out that way.

And while the developing world drives that extremely high proportion, it is worth noting that in the United States, cash usage, astonishingly, represents 13.1 percent of overall U.S. gross domestic product (or $2.2 trillion), according to PYMNTS Global Cash Index.

And that’s on the lower bounds for many countries.

Cash has a tendency to be overlooked when stacked up next to its more technologically advanced counterparts — but its popularity is pretty straightforward: It’s ubiquitous, private, immediate, easy to use and doesn’t carry any explicit additional transaction costs.

Of course, cash has a lot of issues, too: It’s relatively easy to steal, it can lose purchasing power over time and it’s very tough to use when transacting online – now a pretty important part of our digital lives.

But for the 2 billion people worldwide and many millions of American households that are un- or underserved, cash only is their primary – or perhaps even only – payment method. That means that cash’s limits often become these individuals’ limitations.

And that, according to PayPal CEO Dan Schulman, creates a pretty untenable situation for a large portion of the world’s population.

“The things that we take for granted, such as paying a bill, getting credit or sending money to loved ones, suddenly involve a tremendous amount of time and cost. It is almost like a part-time job to pay your bills. You are driving, you are waiting in line, it is a terrible experience. But it is the daily reality for those 2 billion people in the world that are not well served by traditional financial institutions,” Schulman noted in a recent interview.

And it is increasingly an unnecessary daily experience, notes Schulman, given that by the year 2020, 90 percent of the world’s population will have a phone and “all the power of a bank branch in the palm of their hand.”

The trick — and it is one PayPal seems determined to pull off — is finding a way to leverage that power and give the financially underserved a meaningful way tap into it. Digital isn’t about killing cash in a single blow, it’s about finding way to make it work better for the people who are welded to cash at present.

In other words, building that bridge from cash to digital — and to financial inclusion.

“Cash has been around for thousands of years in some form, and it is going to be around for a long time to come,” Shulman said, noting that while the world has a long way to go in terms of digitizing cash, a tipping point is starting to take shape.

This week, with the acquisition of the TIO Network for $233 million, PayPal seems to have taken one more step toward building that bridge — and accelerating the eventuality of that tipping point.

Behind The Bill Pay

TIO has a platform that makes it possible for customers to use cash to pay their bills at kiosks in any one of 65,000 retail locations like Rite Aid as well as online via their bill payment platform. In 2016, TIO processed around $7 billion in bill payments, serving a base of about 14 million customers.  TIO’s mission — now PayPal’s — is to make it more convenient and affordable for underserved customers, many of whom lack bank accounts, to pay bills the same day they are due with hundreds of billers. Now, those customers can use a PayPal account to do that, as well.

Of course, PayPal, via the acquisition, now has access to a biller network that can be pretty valuable to existing PayPal customers who also like paying their bills electronically – and on the same day they are due, too.

And since bill payment is one of the stickiest solutions that a financial services provider can offer, it may also give PayPal an opportunity to increase the frequency of use from the two times a month that it is today to the many multiples of that it would like it to be — while further advancing PayPal’s place in its users’ lives as more than just a buy button on a merchant’s web page.

The 2 Billion Customer Question

Clearly, at its core, though, the acquisition of TIO is about PayPal’s ability to further position itself as a viable digital alternative to those who don’t feel particularly well-served today by traditional banks or are simply shut out of today’s digitally-dominated world because cash is their payment method of choice.

PayPal’s been chipping away at that over the last year – with the acquisition of Xoom and the introduction of PayPal Cash, its reloadable prepaid card, which allows for cash to be deposited into a PayPal account at a myriad of retail locations like RiteAid, CVS, and 7-Eleven. And, we might surmise, soon the 65,000 kiosks that TIO happens to have all over the place now, too.

PayPal is growing the number of ways and places it is accepted – to pay bills, to send money to loved ones, to shop online, and to use the PayPal app to pay for things in physical stores, too. Financial inclusion, at least the way that PayPal seems to be defining it, isn’t only about giving people options — it’s about giving the underserved control of their financial lives by turning cash into a digital utility that can be used to satisfy a number of their financial service needs with one familiar brand – and one very familiar form factor, their phone – and an increasing number of digital payments and commerce endpoints.