BillFloat Taking Business Away from Big Bank Payday

BillFloat, a Bay Area startup, has a new unsecured credit service that pays bills for consumers without directly advancing cash into their pockets.

ABC News/USA Today recently mentioned the company among a variety of new options out there to help people get options beyond payday loans. While the cost of paying a bill through BillFloat is not cheap, there are other features that distinguish the product from any payday loan product – not just the standard store front payday loan but also the new checking account advance products that advocates have called out as “bank payday.”One key difference, at least from my viewpoint, it that with the BillFloat model the consumer never gets cash.

Anyone with a checking account (but not a one-time use card) can apply for a BillFloat account, but only a portion of those consumers will be approved.

BillFloat CEO Ryan Gilbert would not reveal how it vets its applicants, although he did say that the company does not pull credit and it does not tap the ChexSystems registry.

“I worry that we have grown up in a world where credit is seen as a right, as a kind of an entitlement,” Gilbert said, “but our decision regarding any credit should be decisioned upon your financial standing. With consumer credit, perhaps ‘less is more’ is a good model. If a customer says ‘I need $200′ maybe they only need $100.”

More often than not, he said, new customers come through the suggestion of one of the approximately 3,500 billers that are partnered with BillFloat. I checked on their site. Time Warner, PG& E, and AT&T were among the companies prepared to work with the service.

Unlike bank payday or the former MetaBank i-advance, BillFloat does not force people to set up a direct deposit with their company. As a result, consumers cannot be forced to give up their next paycheck in order to satisfy a debt. People get 30 days. If the bill remains unpaid 10 days after the due date, then there is a $10 late fee. Without direct deposit, BillFloat skips one of the most onerous aspects of payday lending – the roll over.

A comparison of existing unbanked credit products.

The chart above tries to compare a variety of short-term unsecured credit products. I have sorted them on this list by an estimate of their cost, but there are other columns that are appended that make it difficult to offer any simple hierarchy of product quality.

BillFloat is funded by investments from several venture capitalists. Because they source their money from non-bank sources, they are subject to state regulatory supervision.

I think that there will be a variety of opinion about BillFloat. I would like to hear from people about their reaction to this product. My last take-away is that this product puts Wells Fargo and US Bank to shame. The big banks, with the blessing of the OCC, are offering a far more costly product that treads liberally upon consumer protection rules. The banks don’t vet those advances for need and they take any outstanding debt out of the account as soon as possible.

One consumer advocate recently told me that “bank payday is the biggest threat to consumers in the last decade.

BillFloat competes in the space of companies claiming to offer credit for the unexpected emergency. Lots of companies want to serve this need. Most use several well-worn examples to justify their product – the unexpected car repair and the broken dishwasher are some of the more popular iterations. What is left unsaid are the immense problems fostered by the use of this credit. Payday lenders spend tons of money on identifying new customers, mainly because they tend to run too many of their clients into bankruptcy. Sometimes the emergency this week is not a one-off event. It is only the latest emergency in the life of a household living on the edge day after day.