As this year comes to a close, how might two electronic payment services be noteworthy to property owners? Also, what are the implications for tenant payments and real estate financing in general? Competition
The steady decline of the greenback
A large bouquet of payment options entered the marketplace in the past years. A trend emerges showing cash, the old trusted standard, competes with more formidable and innovative competitors. Once preferred, real money is rejected by an ever-growing list of vendors, according to a recent article in the Wall Street Journal. Further cementing cash’s downfall, major banks actively discourage patrons from using their walk-up tellers—directing them to their ATMs, home banking and AI (artificial intelligent) driven online chat sessions. Even cash’s conventional uses tipping hairdressers, taxi drivers and splitting dinner bills have found effective smartphone substitutes this year. (Notable exceptions: day laborers, international people, and the underground economy still prefer transacting in cash, I hear. However, as many of them use mobile devices, so I wonder how long this trend will last.)
Cash is was king
“All cash” offers on homes, cars and vacation-stays rarely mean physical cash. If it did mean real money, the associated risks would involve both buyer and seller transporting, storing and counting large quantities of bills and coins. Trust and safety are concerns. Do you recall cashier’s marking your bill with a special marking pen to verify your 20 dollars? How easy is it to over, or underpay someone using currency and coins? What happens when someone in line in front of you pays with pennies or nickels? More to the point, Can one benefit from Amazon or eBay services using only cash?
The year 2018 witnessed virtually every social media platform and smartphone platform enhancing its signature payment method, crowding out both traditional- and in-store/credit cards. These convenient payment services provide subscribers many rewards such as tailored marketing, cost-saving promotions, and discounts, but also byproducts such as data collection, GPS tracking and, unfortunately, re-selling (or losing) this data to others. Are the benefits worth the costs? This author says, yes. However, let the ‘buyer beware.’ That said, this past year’s media highlighted risks and rewards of individual’s stored, cloud-based preferences (and other personally identifiable information) by private companies.
With the aforementioned disclaimer stated, banks, and the banking system are notably late to the game. However in the realm of electronic payments, they possess obvious advantages. Like social media, they hold personal financial information. Banks and financial services are historical experts in moving and transferring money. In an effort to avoid being eclipsed by the broadening reach of Silicon Valley alternatives, two key players, Zelle and PayPal made considerable advances. For non-cash accepting landlords, and other real estate professionals, their contributions to 2018 provide a glimpse into what just might be the direction of digital transactions.
Both Zelle and PayPal offer a no-cost version of their services. They both updated their platforms showcasing easy mobile friendly billing and payments–for both the sender and receiver of funds. Both also send informative and streamlined text/email messages notifying users of incoming funds.
However, in 2018 their enhancements differed in the following ways:
- Zelle, approaching ubiquity in the United States, becomes the most popular electronic payment service — albeit largely unbeknownst to its underlying subscriber base.
The group of banks which formed Zelle automatically enrolled all account holders. Also, smaller banks and credit unions similarly quietly added their members to this service. This game changing move created a situation where nearly everyone is a Zelle user. What this means is that most people can send and receive Zelle payments without doing anything. If a person bank somewhere, (anywhere), Zelle is likely one of the account perks. It’s only a matter of learning how to use the service. Tenants may withdraw funds from their Zelle account and send money directly to your bank account—with the ‘restriction free’ deposit showing in your account instantly. Automatic enrollment may indeed surprise most people.
- PayPal ups it game providing free instant deposits and transfers to linked bank accounts — (usually 2-6 hours instead of 2-3 business days)
Seeing the writing on the wall, PayPal recently enhanced non-business account holders ‘same-day’ deposits to linked accounts. Formerly, it charged a fee for this service. Unlike Zelle, PayPal subscribers keep a ‘balance’ in a virtual cloud account. PayPal is competition for ‘unbanked’ individuals since it is free, quick (at most 7-11 stores) and minimal setup documentation is required. PayPal’s virtual account regrettably fails to provide the depositor interest like a bank, but account funds may:
A. Load a pre-pay PayPal Debit Card
B. Pay a friend (although, this friend must also use PayPal)
C. Initiate a one-way outgoing transfer to linked Bank Account. (*now received by the linked bank within hours during M-F)
D. Pay for online services (such as Skype)
E. Pay for physical retail purchases in stores like Home Depot
F. Transfer instantly to another PayPal user
The virtues of instant deposits to linked accounts make this service an attractive alternative to both cash and checks for property owners. Formerly, PayPal charged a small fee for this instant service. I never paid it, since it was okay for me to receive funds in their usual 2-3 day service. Now that instant deposits are the default option (free), I see updated deposits into my bank account from PayPal 2x per day. Faster is better, and welcome!
- PayPal purchased Venmo
Venmo is hugely popular with the younger demographic. Splitting rents and dinner costs are just a few of Venmo’s core competencies. Venmo introduced a free pre-payment Master Card this year, making it a competitor for both the physical and online marketplaces. Now wholly owned, PayPal becomes an attractive option to receive payments. Property Owners: If you plan on leasing units to multiple tenants- or younger tenants, Venmo offers you the flexibility to send, (view) and receive partial payments. Millennials know and use Venmo. For this audience, what could be easier than texting money? In the coming year will Venmo’s hip-hop appeal, social connectedness, and feature-rich ecosystem prevail with its new parent, or, might PayPal force slow conformity to its new acquisition?
- Everybody likes lightning speed, and Zelle becomes the reigning champion
Incoming Zelle deposits materialize faster than any other service, full stop. The transfer speed is instant. Combine this speed with the fact there is no initiation or ‘setup’ will simultaneously wow the naysayers and convince the new converts.
As a remote property manager, how do vendors know via the phone or email they will receive prompt payment from a voice at the other end? Here’s how these payment options allow me address this issue: I inquire contractors and handymen whether they accept PayPal or Zelle. Most have never heard of Zelle. Some know and but few accept PayPal. With only knowledge of their mobile number, I send them a test ‘dollar’ from my bank to their account. They receive a text message to their smartphone, and a link with Zelle’s information showing affiliate banks. Within a few seconds, after following prompts, they confirm an unrestricted, hassle-free deposit — into their bank account — without no further sign up or downloads .
When one manages properties remotely, hiring and satisfactorily paying individuals via phone becomes a crucial component to saving travel expenses. The Zelle platform builds trust between you and your contractors by allowing you to both to confirm receipt of payment before the phone conversation is over. (PayPal works in the same way, but both users must already have an established account.) Express, instant payments equally please tenants expecting security deposit refunds, or other fees–when you can not be present. No more ‘check’s in the mail’. Using text messages, it is possible to send a photo of the ‘payment sent’ email to those who are owed money, thank them, and ask whether they received funds on their end.
Here is a quick and dirty Zelle/PayPal comparison:
PayPal allows free bank one-way incoming transfers from tenants. If the tenant has an open account, the incoming funds are also unrestricted. If it is restricted, then PayPal notifies the landlord by email the number of days before it is released. Unheld funds allow landlords to quickly move rent payments, without dollar limit, to a linked-account.
One caveat, one double standard:
Full Disclosure: I am a non-business account holder with PayPal. As of this blog post, sending outgoing payments on Friday afternoon does not reflect on bank account until Monday morning–creating floating funds for 3-days. My tenants also learned this feature, and I’ve been noticing an uptick in Friday payments. All outgoing PayPal payments post to my linked account the following day. All self-initiated transfers from my PayPal account balance (also known as ‘deposits’) post to my linked bank account within 3-12 hours instead of 1-3 business days (never weekend/holidays). I receive (incoming) transfer payments faster, but my debts still take at least a day to clear. Noting the hugely advantageous double standard wherein incoming funds arrive sooner than outgoing funds, I imagine that harmonizing this discrepancy is only a matter of time.
Both PayPal and Zelle are free services. Their recent 2018 enhancements keep them in step with their social media counterparts. Speed, ubiquity, and ease-of-use are their strong suits. Also, this year, banks and banking services did better in protecting their account holder’s personally identifiable information. Also, since they are regulated financial institutions, these two services have robust dispute resolution options already baked-into their services. An area for improvement would be for them to offer more robust business accounting options for end-of-year reconciliations.
Since I already use a bank, signing up for them both of them was easy (in the case of Zelle, I did not have to do anything). I’ve included Zelle & PayPal in my leases, and if the law allows, eliminated cash and check payment options.
I welcome your comments. What are your experiences using electronic payment services?
As always, with regards, Baron