Power of Payments Ep. 18: Chase disrupting rent payments, MoneyGram’s crypto expansion, and more

Welcome back to the Power of Payments podcast. I’m your host Ismail Umar, and in today’s episode, we will discuss why JPMorgan Chase is launching a digital rent payment solution, and how American consumers plan to use more flexible payments this holiday season. We will also talk about MoneyGram’s recent crypto expansion, and the potential role of digital currencies in the remittance industry.

Before we move on, I’d also like to inform you that in response to a lot of requests, we at Tearsheet have decided to turn our upcoming Big Bank Theory Conference into a virtual event, which will be held on December 8-9, 2022.

We’ve got a great list of speakers lined up from firms including Chase, Citi, Synchrony, Shopify, Cross River, Citizens, Affirm, and many more.

If you’d like to join us, you can sign up for free here.

And now, on to today’s episode.

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The following excerpts were edited for clarity.

Chase wants to disrupt rent payments with new digital solution

Let’s kick off today’s discussion by talking about JPMorgan Chase. The banking giant is rolling out a digital payment solution for landlords and tenants, tapping into a growing demand for digitized rent payments.

The new tool, called Story, will automate the invoicing and receipt of online rent payments for property owners and managers. Since not all tenants pay rent on time or in full, Story aims to help landlords track which tenants have paid up and which ones haven’t. Additionally, it will provide property owners with analytics to help them determine rent prices and make future property investments, and will also offer a tool to screen new tenants.

And for tenants, Story will automate their monthly rent payments, send them reminders for upcoming payments, offer them multiple payment options, and provide an online dashboard showing their payment history and lease agreement.

Story currently has a beta version available in 15 states across the US, but it’s expected to be fully released for the public in 2023.

Landlords and tenants don’t need to be JPMorgan customers to sign up for the platform.

So far, Chase hasn’t yet finalized its fee structure for the product, but it has indicated that it will not charge a transaction fee for ACH, debit, or credit card payments for the first year. After that, clients that hold an unspecified minimum balance will continue to receive free ACH payments.

The bank says that its goal with this platform is to cut out the age-old use of checks in rent payments. While digital payments have steadily taken over various types of transactions, particularly since the pandemic, monthly rent payments still lag behind in this area. That’s because the US market is highly fragmented, with most of the country’s 12 million property owners running small portfolios of less than 100 units.

As a result, about 78% of rent payments are still made using old-school methods like checks, money orders, and cash, according to JPMorgan. Besides having to manually collect paper checks and depositing them, landlords typically also use decades-old software like Microsoft Excel to keep track of payments.

Chase estimates that more than 100 million Americans pay over $500 billion in rent every year. In recent times, a number of fintechs have tried to disrupt this market, but haven’t been able to gain widespread adoption. Now, the country’s biggest bank is using its scale and reputation to try and get a major share of this massive market.

Zooming out, this project is part of JPMorgan’s broader ambition to create more digital experiences, fend off fintech rivals, and solidify client relationships. Under CEO Jamie Dimon, the bank has committed to spending more than $12 billion a year on technology, which is an enormous figure considering the current global macroeconomic climate.

Consumers are increasingly turning to flexible payments to counter inflation

Next up, let’s look at how American consumers plan to use more flexible payments to be able to afford gifts for themselves and others this holiday season.

For much of this year, American consumers have been feeling the pinch of rising interest rates and the climbing cost of goods. People living paycheck to paycheck, or those with nonprime or subprime credit, are especially vulnerable to the effects of inflation. For many of these consumers, the ability to split payments and pay over time allows them to get the items that they need but may not be able to otherwise afford.

New research from lease-to-own payments provider Katapult finds that more than three-quarters of consumers with nonprime credit scores or lower say that they would use a flexible payment option – such as BNPL or LTO – to purchase gifts for themselves and others this holiday season, if these options are offered by the online or physical stores where they shop.

Despite historically high prices, almost a third of shoppers expect to spend more than last year on gifts this holiday season, according to the survey. And over half of consumers are more likely to shop with a merchant that offers flexible payment options, especially as many traditional lenders have tightened their lending criteria and increased interest rates.

Younger consumers are particularly eager to use alternative payment solutions, and many of them specifically seek out retailers that offer these options. 60% of Gen Z and millennials say they are more likely to shop from a merchant that offers flexible payment options, compared to 45% of their Gen X and older counterparts.

So, what does this research tell us about how rising prices and interest rates influence consumers’ use of different payment options?

I spoke with Orlando Zayas, CEO of Katapult, to get some more insight into the implications of this research. Here’s what he told me.

“The holidays can be expensive even in rosier economic times, and that’s likely to be even more true this year, with consumers paying more for less due to higher prices. Without the flexibility to split larger payments over time, many nonprime shoppers will have a hard time affording items such as video game consoles, laptops, TVs, and other popular gifts for themselves or others.

We’ve found lease-to-own and other flexible payment options appeal to younger consumers since they are more likely to pick up on newer trends, less likely to have established credit, more wary of incurring credit card debt, and often struggle with larger purchases since they have yet to hit their prime earning years. By offering flexible payment options, retailers can reach younger customers now and earn their loyalty for years to come.

Nearly two out of three Americans say that currently, inflation is causing them to delay or skip purchasing big-ticket items. This likely explains why more than half of consumers say they are more likely to shop with a merchant that offers flexible payment options, such as BNPL or LTO.

Higher inflation is also causing traditional lenders to tighten their lending criteria or increase interest rates, and without flexible payment options, the majority of Americans wouldn’t have the funds to obtain the goods they need. Alternative payment solutions that split payments over time enable consumers to stretch their dollars further when items across the board are more expensive and money is not going as far as it used to go.”

Of course, it’s important to mention here that these alternative payment options may provide a temporary respite to consumers against high inflation, but repeated use of flexible payment methods like BNPL could potentially further weaken the financial health of nonprime consumers by leaving them with growing debt that they may be unable to pay off later.

It would be interesting to see whether lease-to-own – which has been touted by some as a “recession-proof” alternative to BNPL – gains more adoption as consumers continue to seek out flexible options to break up their purchases into manageable payments.

MoneyGram deepens crypto push with crypto trading service

A couple of weeks back, money transfer firm MoneyGram launched a service that allows US consumers to buy, sell, and hold cryptocurrencies from the company’s mobile app. MoneyGram is currently offering Bitcoin, Ether, and Litecoin, with plans to expand into more markets and add support for additional tokens next year, depending on global regulations.

The new functionality is being offered through a partnership with Coinme, a cryptocurrency exchange and crypto-as-a-service provider.

The crypto trading service is the latest in a series of crypto-related initiatives taken by MoneyGram in an attempt to set itself apart from competitors in the money transfer space like Western Union, Wise, and Remitly.

Alex Holmes, chairman and CEO at MoneyGram, says the company’s move towards crypto is part of a broader strategy to further its reach by tapping into a new demographic of young, digital-native consumers sending funds internationally. Holmes says that as consumer interest in digital currencies continues to grow, his firm – with its global network and compliance solutions – is uniquely positioned to meet that demand and bridge the gap between blockchain and traditional financial services.

At the start of this year, MoneyGram expanded its relationship with Coinme by acquiring a minority stake in the crypto firm. And in June, it launched a global crypto-to-cash service with the Stellar Development Foundation, which allows users to send USDC payments that can be withdrawn in cash by recipients in different countries.

Even though the global crypto market continues to struggle – with the recent FTX saga only making things worse for the industry – institutional interest in the space still doesn’t seem to have waned. Companies in the remittance industry appear to be laying the foundations to expand into crypto as well. Just a few weeks back, Western Union filed three trademarks that covered managing digital wallets, exchanging digital assets and commodities derivatives, issuing tokens of value, and brokerage and insurance services.

There seems to be continued demand from consumers as well, many of whom are open to the idea of using digital currencies for international remittances, particularly in emerging markets. A recent report by crypto payments firm Wirex found that over half of consumers in the US, UK, Mexico, and Singapore see crypto as a valid alternative to sending money overseas using traditional methods, and 45% have already used crypto to send money to another country.

Driving the shift towards crypto as a cross-border payment method is frustration with existing systems, with 53% of people feeling they paid too much in fees for international remittances using traditional means, and 37% not knowing how much they paid at all.