Think about the last thing you bought.
You pulled out a few bills or a plastic card, maybe punched a few numbers or signed a receipt. Perhaps there was some jangling of keys as you looked for the right loyalty tag to scan.
Odds are, it felt simple and unremarkable. But to a small set of local entrepreneurs, the act of paying for something is ripe for reinvention. Why can’t you get a digital receipt that could be automatically included in an expense report? Why can’t the merchant instantly see data from the day’s transactions to figure out which items were selling well — and what needs an extra push?
Last year, half a dozen local companies developing payment technologies collectively raised more than $55 million. Their investors are betting that we’re on the cusp of big changes affecting both our wallets and the cash registers we encounter.
“It took 15 years for home banking to take off, and about five years for online bill payment to take off,” says Jim Moran, a partner at North Bridge Venture Partners in Waltham who has built and invested in a string of payment-related startups. “Today, everyone has smartphones, and I think this market — using them to pay for stuff — will light up faster than those other two.”
And while other technologies attract more media attention, transforming retail transactions is a truly massive opportunity. “Trillions of dollars of commerce happens,” Moran says. “If you get 1 percent of that, you can be such a big company.”
Of local payment entrepreneurs, Igor Ostrovsky has the most interesting pedigree. He’s a statistician who once worked at CapitalOne developing the card issuer’s credit risk policies. He also owns three wine shops around Boston. And he is trying to reimagine the credit card from the ground up.
“When we sell someone a few bottles of wine and they pull out a credit card, we get hammered by these ridiculous credit card fees,” typically 2.5 to 3 percent of each transaction, Ostrovsky says. His start-up, ArgoPay, wants to create a new kind of card that lives in your smartphone.
For merchants, the lure is escaping those transaction fees. Accepting ArgoPay will be “the same as cash,” Ostrovsky says. That gives merchants an incentive to promote the app to their customers. They’ll pay the company only if they want to use ArgoPay’s app to run marketing and loyalty programs to bring new customers in, or get old customers to return.
Ostrovsky says he’s launching the service this month at his own stores and at several other businesses in the Andover area. In this test phase, ArgoPay users will have a $100 spending limit, tied to their bank accounts, but the company plans eventually to run credit checks and extend lines of credit to worthy users.
A Woburn startup called Loop has designed devices that allow you to use a smartphone to scan in all of your cards with magnetic stripes — and then leave them at home. The devices (one is a phone case, $99, and the other is a small accessory, $39, that plugs into the phone’s headphone jack) can generate a magnetic field that “tricks” credit card terminals into thinking a card has been swiped. The company says its devices work with about 90 percent of credit card terminals.
The company also plans to allow businesses to deliver coupons and other messages through its app, for a fee. (In this new world, your phone will not only become your wallet, but also your mailbox, receiving offers both appealing and un.)
Plastiq was founded by two Harvard undergrads who were surprised you couldn’t use credit cards for large, recurring payments like tuition, rent, or taxes. Their Boston startup basically reverses who is responsible for paying the card fees.
Instead of the merchant footing the bill — one reason merchants don’t accept cards for large transactions — consumers pay a 2 percent fee for using their cards. Plastiq serves as an intermediary, ensuring the merchant receives the money via a bank transfer, and takes a cut of the fees.
Leaf, a Cambridge company, designed its own tablet computer, which uses Google’s Android operating system, to enable small businesses to accept credit cards and future forms of payment. Leaf is trying to radically undercut the pricing of a traditional cash register: The service costs $50 a month, plus $250 for the tablet.
But payment is just a Trojan horse, says chief executive Aron Schwarzkopf. The company is developing software, and inviting others to develop software, that will help merchants run their business, from doing analysis on sales to handling accounting and inventory. Leaf is setting aside space in its office for a “hatchery” that will house other startups working on payment-related technologies.
Paydiant is a company that doesn’t care if you ever know its name: The Wellesley company is taking a “white label” approach, allowing its customers to build their own payment-related apps and services, using Paydiant’s technology as the innards.
Subway, the large fast-food franchise, is licensing Paydiant’s technology for a forthcoming mobile payment app, and chief executive Chris Gardner hints that an even bigger customer is about to be announced. Paydiant is also pitching banks to use its technology to allow smartphones to communicate with ATMs, so you can get cash even if you don’t have your card.
The companies all contend that these new approaches to payment will be more resistant to crooks.
Gardner and the other entrepreneurs acknowledge that there is very crowded field of companies hoping to be the next wallet or cash register. Not all will survive. But, appropriately perhaps, they’re motivated by the big payout, as well as the chance to create a really big company on the order of American Express or PayPal. “The reason we’re all doing this is we want to be one of the ultimate winners at the end,” Gardner.