Goodbye paper checks. Hello online payments.
- By Peggy Shaw
- Published December 2016
While the moment of inspiration in launching each of three rental payment solutions companies happened rather differently, they all reached a quite similar conclusion.
For Tom Villante, founder and CEO of YapStone, parent company of Rent-Payment, it was a poker table in 1999. Ty Kalklosch and Yann Phung came up with the idea for the creation of PayLease over a few beers after work in 2003 and the spark that ignited Richard Calmas' concept for Neighborhood Pay Services and the company's Rent Assurance program was struck by a credit card offer in 2008.
During that poker game in 1999, one of Villante's fellow players mentioned that he couldn't buy a motorcycle he'd seen advertised for sale in the newspaper on a recent Sunday because the owner wouldn't accept a paper check and the transaction was too big for PayPal.
"That got us thinking about where paper checks are the predominant form of payment and the motorcycle started us thinking about what else was large-ticket," said Villante. "That led to our launching Rent-Payment, the first online payment solution for the multifamily industry. Our goal was to improve the rent payment and collection process by serving as an integrated platform for property managers to accept rent payments by credit card, debit card or e-check."
Even back in 1999 people were using online banking services to pay most of their bills, "but rent was still the only check that most people were still writing," he said. "We decided to dig in."
Research revealed that multifamily owners were reluctant to pay credit card processing fees that ran around two or three percent at that time.
"They still are. They're not willing to add such a significant operating expense to their general ledger. They didn't underwrite the properties they bought contemplating that expense," he said.
"So, we introduced a flexible fee structure where the property management company or the resident, would pay the fee. That was new for the industry."
Depending on the average rent at a property, a renter who uses RentPayment will pay approximately 2.9 percent for a credit card transaction and significantly lower fees for debit card transactions. In most cases, ACH (e-check) payments are free to the renter.
"For about the price of a latte, a renter can set it and forget it. They will never have to worry about paying rent or worry about late fees," said Villante.
RentPayment, acquired by YapStone in 2003 when only two companies focused on online rent payments for multifamily, also created a middleware solution. That software allowed apartment companies to see what a credit card payment covered-whether rent, security deposit or other expense-and created automation whereby an online payment would post to a property manager's general ledger account. This included integrating with property management systems like RealPage, Yardi and MRI.
RentPayment, which is powered by the YapStone payment platform, provides multifamily companies with the ability to keep customer bank account data secure while making it easy for resident information to be updated and changed.
In 2010, RentPayment launched the first mobile phone payment application specifically for the apartment rental industry and now offers a suite of online payment options that includes text message, email and autopayments.
In 2015, RentPayment processed more than $5 billion in rent payment volume, making it the leading payment solution in the industry and Villante expects to see 40 to 50 percent growth in 2017.
The RentPayment team sees a huge opportunity in multifamily, Villante said, and plans to double the company's budget for resources, product and acquisitions. He believes there's a need to solve what he considers a somewhat archaic process that includes finding an apartment, applying for it, reviewing and signing the lease, paying a security deposit, paying monthly rent, submitting maintenance requests, lease renewal and the whole lifecycle of a renter, and the landlord's interaction with that renter.
"We think there is a technology solve that we are in the process of building that will have an impact in 2017. We have the resources, expertise and the capital to do that," he said of the company that today employs around 400 people with two offices in California, one in Ireland and has hired a new employee a day for every workday so far this year.
The RentPayment team has decided to create a division with dedicated resources focused solely on multifamily, Villante continued.
"We're cordoning off multifamily to make sure we take advantage of this opportunity and that resources don't get diluted. Here's the interesting thing-in 1999, less than a tenth of a percent of renters were paying their rent electronically. More recently, about 25 percent of U.S. renters are now paying electronically. Seventy-five percent are still paying by paper check," he said.
That number, he said, should be so much lower, hence the massive opportunity that he estimates to be in the neighborhood of $450 billion to $500 billion a year in potential processing volume.
Villante expects that by the end of 2016, YapStone will have processed more than $15 billion in electronic payments with the multifamily component of that around $5 billion.
So why Yapstone? Yap is a Micronesian island where the 6,500 residents use circular stone boulders as their form of currency, said YapStone CEO Tom Villante, explaining the origin of his company's name.
The bigger the boulder, the more wealth you had, he said, but the huge stones that range in size up to 12 feet in diameter presented a serious transportation problem.
The Yapese solved that dilemma by transferring ownership of the stones via their oral history. Since Yap stones often are too large to move, the purchase of an item is as easy as saying a stone no longer belongs to the buyer and is now owned by the seller.
"They came up with a creative solution around moving money and we thought it was a perfect name, because online payments are a new way to move money," said Villante.
"We wanted to create a technology company from the very beginning, not just solely a payment processing company," he said, explaining that YapStone was built as a technology company that uses financial technology in new ways and in new markets.
Neighborhood Pay Services
A credit card offer and his experience in the multifamily arena inspired Richard Calmas in 2008 to create Neighborhood Pay Services (NPS) and the company's Rent Assurance payroll direct deposit platform that he and his wife and business partner, Ellen Calmas, launched in 2010.
"I got a cash-back credit card offer and I thought it was fantastic. I had to pay my bills anyway. I could pay my utility bill and get a couple of points back and I really liked the idea," he said in a recent interview. Contemplating his own good fortune led him to thinking about people with less than perfect credit as a population that might be ripe for some type of credit-related innovation.
As a private real estate developer in the Boston area, and former president of a privately held multifamily property company, he had experience as a landlord and his biggest headache was always rent collection.
"I would have loved it if there was an automated way that I could know that individuals were paying their rent on time," he recalled thinking, as he honed in on the credit-challenged population-and the idea for NPS Rent Assurance and rent from payroll was born.
Thanks to his familiarity with the multifamily industry, Calmas had associates in the field who validated his idea for a company that would provide the kind of rent payment assurance he was looking for and more affordable access to housing for those with less than perfect credit profiles, who might have trouble affording the upfront deposits required to move in.
Calmas recognized that the conditionally approved segment, which represents some 30 to 35 percent of all renters, wasn't being served by other platforms that cater to applicants accepted outright and whose approvals are based on better credit.
"I knew from my own experience as a property manager that I'd be willing to give up some of the security deposit otherwise required of lower credit applicants if I knew they would pay on time," he said.
He worked with IT, banking and legal experts to develop the engine that makes that possible, introducing a beta version in 2008 of the NPS rent from payroll solution that launched in 2010.
Unlike any other rent delivery tool in the industry, NPS provides landlords the assurance that rent will be paid via a payroll direct deposit platform that receives funds from renters' employers every pay period, in advance of when rent is due. Rent funds are deposited in a dedicated bank account managed by NPS, so landlords know the money is always there for the upcoming month's rent.
That assurance allows landlords to reduce the cash security deposit required to move in, which in turn increases conversion rates and reduces the landlord's new resident acquisition cost.
"Asking applicants to come up with more money to move in only proves they can come up with the money, not that they'll pay rent reliably throughout the lease," said Calmas, adding that a major benefit of the NPS program is reducing the hurdle in the beginning of the leasing process where asking for higher deposits makes it more difficult for the property company to convert prospects to residents.
By reducing or eliminating the additional security deposit typically required for a conditionally-approved applicant, the NPS program helps residents maintain a larger financial cushion at move-in, which translates into a more stable resident.
"Most applicants with lower credit scores have money