Aug 25, 2019
Payment company DivDat banks on the unbanked as it bids for reinvention
BY KURT NAGL | CRAIN’S DETROIT BUSINESS
- DivDat ditches old business of mailing paper bills in favor of payment kiosks
- Kiosks, which are fee-free for users, allow payment of utility, tax, other bills
- Aims to double revenue as it eyes expansion beyond metro Detroit
After a half century in business, Diversified Data and Communications Inc. is back in startup mode.
The Royal Oak Township-based company known better as DivDat is shedding the remnants of its traditional billing business — its core operation since Al Bierkle started it in 1971 — after selling its last book of contracts to a New Jersey company late last year. The family-owned company has bet its future on digital kiosks that let customers who don’t have bank accounts pay bills.
Over the past couple of years, the company has rolled out 75 bill-payment kiosks in Detroit and a few suburbs that can be used fee-free to pay essential bills, such as property taxes, water and electricity. As the company prepares to move its headquarters to Detroit later this year, management is working to revamp its identity and re-establish its viability.
In the early 1980s, the company peaked in size with 120 employees and annual revenue around $50 million from sending paper bills on behalf of automakers, airlines and other clients. Since then, print mail services have turned into a commodity, digitization has eaten away at the bottom line and once-strong profit margins have become negligible.
Jason Bierkle, president of DivDat, thinks he’s found a way to keep his father’s business going. The clean-shaven, energetic 48-year-old envisions a company capable of growing quickly while helping an under served population pay bills more easily and helping clients collect money they didn’t expect to see.
“What got us to the point that we were gonna sell the legacy business so that we could focus on this is a social mission to bring technology to the 25 percent of the country that needs it the most, so that they can stay in their homes, keep their heat on, keep their kids in school,” he said. “We can help, and we can make some money doing it.”
Of all major cities in the U.S., Detroit has the highest percentage of under banked people. Around 20 percent of residents do not have a checking or savings account, and nearly 30 percent rely on alternative financial services, such as check-cashing, payday loans and pawn shops, according to a study by Washington, D.C.-based nonprofit Prosperity Now. This makes Detroit the perfect pilot market, Bierkle said.
DivDat is a startup in the sense that it aims to disrupt the payment industry not with flashy new technology, but with a new way of thinking. There are hundreds of companies competing in kiosk billing. One of the bigger ones is Chicago-based City Base, which sold for $160 million last year.
What separates DivDat, Bierkle said, is that it does not charge users fees. Transaction costs, typically $1.85 each, are shouldered by the clients who the users are paying.
The multilingual kiosks let customers to use cash, checks or credit cards to pay Detroit property taxes and water bills, DTE electric bills, 36th District Court fines and escrow rent payments.
To make a payment, customers can scan their utility bills or type in their addresses to see property taxes owed. The kiosk does not require a separate account, and personal information is not stored. It does not accept payments for parking tickets, but the company is in early talks with the Detroit Municipal Parking Department about the possibility.
Bierkle contends that the unbanked, which usually includes those most at risk for foreclosures and water and electricity shutoffs, have been underserved because of limited hours for payment centers, which Bierkle says are unrealistic for many customers. Give them a convenient way to pay bills, he says, and they will.
“It’s not a new technology because everything we’re doing is the same thing we’ve been doing forever. It’s data processing, it’s payments,” he said. “We actually have to sell people on the process.”
The first person he had to convince was his father. At 75, Al Bierkle is still a hard-nosed, old-school entrepreneur, and DivDat is still his baby. While his wife was in labor with Jason, he told her he was quitting his job at Kelly Services to break out on his own. A few days later, both Jason and DivDat were born.
“(The sale) was very, very tough for him because the company has been our fifth sibling our whole lives,” Jason said. “We canceled many vacations because if a job came in on Friday, he’d call my mom and say, ‘You guys go to Disney World, I gotta pay for it.’”
Like a good parent, Al eventually realized that to keep the company going, he had to let go a little.
He stepped back from daily operations after the sale last year. He still shows up to the office every day, midmorning, and kicks the tires a few times, usually leaving a trail of cigarette smoke before being shooed outside by his son.
“I think digital is obviously the way of the future, but I think there is always gonna be a need for print mail,” Al Bierkle said. “I’ve heard it now for the last 10 years that print mail is dying. I think you’ll see an increase in mailing.”
Dive into kiosks
DivDat’s dive into kiosks started in 2014 when it signed a deal with DTE Energy Co. to develop the software for kiosks and operate them at the utility’s customer care centers, headquarters and Rite Aid stores throughout metro Detroit. Then, last year, DivDat won a five-year, $5 million contract with the city of Detroit. It now serves more than 100,000 customers per month.
Revenue for the kiosk company in 2019 is projected to double year-over-year to just below $5 million, Bierkle said. He hopes to double it again next year by exporting the model to underbanked communities across the U.S. The company recently signed payment processing deals with Iowa-based MidAmerican Energy Co., the Las Vegas Valley Water District, and the cities of Colton, Calif., and Grapevine, Texas.
The company’s strategy is to leverage kiosks as a “foot in the door” to municipalities, Bierkle said. Then, the idea is to build credibility and grow from a single kiosk to expanding the network and taking over the client’s other payment channels, including internet, phone and walk-in.
The advantage for the client is consolidating disparate systems into a single biller, Bierkle said. This reduces overhead and shrinkage by eliminating the need to staff attendants to handle payments.
Detroit officials and DTE say the service is helping save money and improve business practices. The Detroit Water and Sewerage Department is saving $320,000 annually with the service, said Bryan Peckinpaugh, deputy director of public affairs for the water department.
“We were pretty much dictating how customers could interact with DWSD,” he said. “Either you mail it or come in person Monday through Friday during business hours. That’s not very convenient for the average person.”
Bierkle said the kiosk program greatly reduced DTE’s transaction costs and boosted money collected. DTE and DivDat declined to provide financial terms of their agreement.
“While it also creates efficiencies in our operations, we’ve been most pleased in how DivDat has made it possible for our customers to pay how, when and where they would like,” Chris Lamphear, manager of corporate communications for DTE, said in an email.
In Detroit, data indicates kiosk usage is rising quickly. About $9.4 million in city property taxes were paid through DivDat in 2017, which nearly doubled to $17.2 million in 2018, according to a city document. Last year, the local kiosk network collected a total of $86 million in payments for the city, not including the water department. About $60 million has been collected so far this year.
Moving to Detroit
In the corner of an industrial district off Eight Mile Road, DivDat’s operations are in flux. As software developers work on kiosk technology, including a new outdoor model, employees for the legacy business are still running Xerox machines.
When DivDat sold its paper billing business, consisting primarily of health care contracts, to New Jersey-based OSG Billing Services last September, OSG contracted DivDat to run the business temporarily during the asset transfer. Terms of the sale and agreement were not disclosed.
Bierkle said he expects the transition to be done by the end of the year, in tandem with the company’s move to Detroit. He said he is finalizing a five-year lease agreement to take 6,000 square feet on the seventh floor of the Palms Building at 2111 Woodward Ave. The company will bring over around 20 of its 50 employees.
Bierkle said the others will either stay on with OSG or be “relocated through a managed services firm.” He considers it more of an evolution than a downsizing.
The company is looking to add another 10 sales and marketing employees soon after settling into its new headquarters and hopes to eventually outgrow the space. If the idea catches on with other cities and energy firms, there will be plenty of room to expand.
“We’re going out on a limb here that we’re gonna be able to change the way that big energy and municipalities do business with the unbanked and underbanked,” he said.
Link to original article: