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On January 16, 2013, Green Dot founder and CEO Steve Streit stood behind a wooden podium to announce a new service called GoBank. The service, FDIC insured, allows users to enjoy phone-based mobile banking without the hassle of a traditional bank, and, perhaps more importantly, without the fees. GoBank, in fact, asks its users to set their own monthly fees ? anywhere between $0 and $9 per month, according to Wired ? for the service.
GoBank is the latest in a rash of finance-orientated companies looking to either offer consumers help, or provide consumers with the best possible service for whatever they?re willing to pay. Even if it?s nothing. It?s a trend that Ram Palaniappan, President of Activehours, a payday advance startup which operates solely off tips, believes is representative of how today?s technology is changing the company-customer relationship.
?I would think it?s coming from companies which are primarily focused on the consumer, and who want to please the consumer,? Palaniappan said. ?It depends on the people behind the company, and what type of company you want to be.?
Palaniappan said he got the idea for Activehours after he discovered the outrageous fees his employees would face for payday advances. He had a better idea which wouldn?t doom his employees to debt: when they needed, he?d pay his employees for the hours they?ve worked in advance and he?d take the difference out of their paycheck when payday arrived. When he moved out to Palo Alto, California, he brought the idea with him, and his tip-based start-up was born.
?When you?re doing a tip model you?re having a really strong relationship with your customer,? Palaniappan said. ?It sets a very different tone with your relationship with your customer.
Pay what you want ? not limited to financial services
Pay What You Want (PWYW) systems allow customers to, well, pay what they want for a given service. Donations can range from $0 to $1,000 and up, and can usually be made anytime. Such models never really took off until 2007, when British rock band, Radiohead, implemented PWYW for their album, In Rainbows, on their website.
After Radiohead?s experiment PWYW exploded. Today there are various services, like taxis, and industries which use the model, though most tend to be charity oriented.
For example, Panera Bread opened a socially-conscious version of their national chain. Called Panera Cares. The non-profit chain allows customers to pay what they want for coffee and pastries. There are few cafes ? four across the continental United States ? but they have been fairly successful.
Panera co-CEO, Ron Shaich, told NPR the cafes ? with one exception in Portland, Oregon ? have paid for themselves. And though the estimates are rough, the Panera Cares claims 60 percent of their customers give the suggested amount, with another 20 percent contributing more than requested.
However, Panera isn?t the first food company to try PWYW. Ben and Jerry?s gave the system an approach with ?partner shops? run by local non-profits. The company would waive franchise fees and allow local non-profits to keep the profits. The results, Robert Gertner, deputy dean of the University of Chicago?s Booth School of Business told NPR, are mixed, and where there once were dozens of partner shops, there are now only three in number.
Can PWYW really work?
A 2011 study published by the Proceedings of the National Academy of Sciences (.pdf) found that PWYW can work as a business model.
Through a series of experiments researchers found consumers are more willing to loosen up their wallets when they?re capable of setting the price. Far more, in fact, than prices set by a business.
The reasoning behind this is simple: people don?t like to be perceived as shrewd and stingy ? but having that fear put in the back of a customer?s mind can also keep wallets closed. The study found that customers are less likely to buy a product where they set the price after being told half of the proceeds will go to a charity. It?s not because they don?t believe in charities, but rather because they don?t want to view themselves as tight-fisted, even when confronted with a worthy cause, when they?re short on cash.
From Palaniappan?s experience, that?s pretty accurate. He said some customers may not be able to give immediately, but they usually come back and contribute when they can. Donations, too, he said, scale with the size of the transaction: bigger advances, for example, nets bigger tips. The result, he said, is a mutual feeling of accomplishment.
?We found this by accident, but we really, really like it,? he said. ?It feels like we?re all on the same side.?
According to Palaniappan, what started out as a banking experiment is becoming a more practical business. Activehours? customers now range from employees of Walgreens and Pizza Hut, to a variety of small coffee shops throughout the Bay Area, and is popular among employees paid by the hour.
While Activehours is unique in its model, GoBank has its competition. Simple, an online mobile tool-slash-debit card, has also made waves with its innovative mobile application based around customer interaction and mostly fee-less structure. (The company, according to the Wall Street Journal, charges for six-months of inactivity and various interchange fees.) That, as Palaniappan notes, is the effect of consumer-centric technology
?So you?re investing in a relationship rather than trapping your customer,? Palaniappan said. ?Let?s make sure the customer is super-happy.?
This article was written for NerdWallet by Michael Mayday
Image:?21TonGiant / Flickr source
Source: http://www.nerdwallet.com/blog/2013/pay-what-you-want-finance-making-debut/
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