On Tuesday night, Stephen Colbert, one of my favorite entertainers, did a very funny bit about Kwedit Promise. Millions of people were introduced to our company and to our mascot, Kweddy. Unfortunately some came away from that segment with a lot of questions.
I thought it would be helpful to explain the thinking behind our offerings. Warning: this is a long and somewhat geeky post.
OUR MISSION
At Kwedit, our mission is to enable people to pay for on-line or remote transactions without a credit or debit card. We do that with two services, Kwedit Promise and Kwedit Direct. Kwedit Promise allows consumers to obtain virtual goods in exchange for a Promise to pay for them later using the payment mechanisms provided by our other service, Kwedit Direct. Kwedit Direct enables payments at a local retail store such as a 7-Eleven; by mailing cash in a free, postage-paid mailer; or by allowing one person to pay on another person’s behalf using Pass the Duck, our social payment network. There’s no notion of Promises when people use Kwedit Direct; it’s simply a way to pay for something directly, typically with cash.
KWEDIT PROMISE IS FOR TEENAGERS AND ADULTS
We are signing new partners almost every day who wish to use one or both of these services. Interest is coming from telephone service providers, e-commerce sites, dating services, educational sites, money transmitters, and, of course, on-line games.
None of the partners we’ve signed for Kwedit Promise allow anyone under the age of 13 to use their services, nor do we. Kwedit Promise is not for children. It is for adults and teenagers age 13 and older.
GOODBYE, KWEDDY
Some people believe our mascot, Kweddy, was designed to appeal to children. In fact, he was designed to make our name stick. Since ducks quack, and quack sounds like Kwedit, we thought he would help people remember our name. Nonetheless, as much as we have come to love him, we’re removing him from our site and our application to eliminate any ambiguity about whom we hope uses our service. Kweddy is leaving our site first because we can do that quickly. It will take us a few more days to remove him from the app. He will, however, remain in our logo, since we hope the quack/Kwedit association will linger.
PROMISES ARE NOT CREDIT
There also seems to be some confusion about whether Kwedit Promise is credit. It is not. Promises are not loans, and we do not extend credit.
A little more detail: We are a payments company. As I mentioned, our goal is to let people pay for on-line purchases without requiring them to obtain a credit or debit card. We do not provide credit, lend money, underwrite loans, charge interest, impose late fees, levy account maintenance fees, or do any of the other things that make credit cards expensive and problematic for so many people. Instead, we facilitate payments for people who want to make on-line payments with cash, and we try to make that as easy as possible.
OUR TARGET MARKET
25% of American households do not have a credit or debit card, and among the 75% who do, an increasing percentage won't use them because they are concerned about their budget, privacy, or security. We seek to serve these people. Some of them are adults and some of them are teenagers, age 13 and older. None are children. Kwedit Promise lets teenagers and adults pay for digital content such as virtual goods.
THE ROLE OF PLASTIC IN ON-LINE COMMERCE
To understand Kwedit Promise, it's important to recognize the two functions of bank cards in on-line shopping: first, they provide access to a pool of money (via a bank account or a lender) and, second, they enable electronic payments over the web. As we all know, if all you have is cash, you can't just push it into your computer screen when you want to buy something. If you have access to plastic, however, you can get what you want just by typing numbers into your screen. On-line card payments are easy and ubiquitous; on-line cash payments are essentially impossible.
For this reason, people with cash must obtain a credit, debit or other pre-paid card before they can shop online. If they don't have a bank account or a credit card, they typically obtain a pre-paid card, some of which are quite expensive, as this New York Times article reported.
KWEDIT PROMISE ENABLES TRUSTWORTHY PEOPLE TO MAKE PAYMENTS CONVENIENTLY
Since our goal was to enable these people to make on-line purchases without obtaining a card, we conducted a thought experiment: we imagined a world where everyone was honest and could be trusted completely. In that perfect world, on-line merchants would be happy to ship goods to consumers who promised to send them cash in exchange. The only consumers who would make promises would be those who actually had enough money to pay, since promising to pay when they couldn’t afford to do so would be dishonest. Those who promised to send cash would not be burdened with the cost or inconvenience of obtaining pre-paid cards. In this perfect world, everyone would benefit: consumers could buy things with cash if they could afford them, and merchants would sell more goods.
In the real world, however, not everyone can be trusted. The consequence is that trustworthy consumers who prefer cash must purchase financial instruments before they can shop on-line. In other words, the trustworthy people end up dealing with the inconvenience and expense of buying pre-paid instruments simply to prove they can be trusted.
Our thinking with Kwedit Promise was that if we could identify trustworthy people, we could allow them to operate as though they were in a completely honest world, and do what cardholders get to do -- buy things electronically when they can afford them. No one else could do so.
With Kwedit Promise, providers of digital goods agree, in essence, to trust everyone up to a point. That amount is called an initial Kwedit Limit. It is typically $5 or less … about half the price of a movie ticket.
All Kwedit Promise users are trusted up to their initial Kwedit Limits. They can obtain virtual goods up to their Kwedit Limits in exchange for Promises to pay for them within a fixed period of time. If they do, they are subsequently trusted to buy more expensive goods in increments of a few dollars. If they don’t, they can no longer use the system. In the process, we identify who publishers can trust. And, these trustworthy people enjoy the convenience of paying without purchasing a pre-paid card.
In a nutshell, Kwedit Promise is a system that enables honest people who prefer cash to purchase digital content.
ANSWERS TO COMMON QUESTIONS
Given all of this, I’d like to address some questions that have been asked:
Is Kwedit Promise the same thing as credit? Not in any literal or legal sense. There's no loan, no interest and no obligation to repay.
Why, then, would anyone repay a Promise? Because they want to continue enjoying the benefits of conducting on-line commerce without a card.
Why did we call our company Kwedit? Promise is actually a reputation-based payment system, but only behavioral economists know what that means. (I’ve only recently learned what a behavioral economist is.) I simply thought Kwedit was a fun play on the word “credit”. We did not mean to imply that it was credit, although I recognize that some people may not appreciate that distinction.
Is Kwedit Promise good or evil? In my mind, it's good: trustworthy people are no longer required to pay fees, lock up their cash in cards, or use inconvenient payment systems to make on-line payments.
Is Kwedit Promise going to get folks into debt? No. Promises are not debt. There is no obligation to repay them. The only consequence for not paying is that consumers may lose the benefits of using the system in the future, or access to the goods that were obtained in exchange for Promises. Also, Promises are small – typically $5 or less.
Are we going to hook teenagers on credit by exposing them to Kwedit Promise Again, I don’t think so. We are simply enabling them -- and adults – to make payments without plastic.
Does Kwedit Promise allow people to learn about credit? We believe Kwedit Promise has the potential to educate consumers about credit in a safe, risk-free environment, and that’s why we’ve provided basic materials and links to other, content-rich sites. Not everyone will take advantage of these materials, but, everyone who uses Kwedit Promise will be exposed to the concepts of credit and credit scores. We believe all users will benefit from this exposure, particularly if they experience it before they are extended real credit.
Are we trying to convince people to buy things they can't afford? No. Since we don't lend money or charge interest, we have no incentive – nor do our merchant partners – to extend Promises to people who can’t afford to pay. We only make money when someone actually makes a payment. Our goal is to allow trustworthy people to use the system while blocking those who cannot or will not make a payment.
What about Pass the Duck? Is that a way to guilt parents into paying? No. It just makes it easy for parents to do what many already do today: Teenagers routinely ask their parents for their credit cards so they can pay for their on-line activities. In fact, one of the most common causes of credit card charge-backs in on-line commerce is what is known as “friendly fraud”, where family members “borrow” credit cards from other family members without informing them. Why does this happen? Because people typically need plastic to make on-line payments. Pass the Duck simply lets one person pay for another without handing over their credit or debit card.
I hope this post clarifies what we’re doing and why. I also hope our site re-design and the removal of Kweddy will eliminate any confusion about whom we hope will use our services. Finally, if you’ve read this far, I appreciate your taking the time to understand our system well enough to make an informed decision about whether it is appropriate for you and your family.
Quack on!
Danny Shader
