BuyGoldWithCash Goes After The Unbanked With A Dubious Investment Scheme

All that glitters is not gold. You may have heard of PayNearMe, an alternative payments product for the ‘unbanked’ (consumers who don’t have traditional bank accounts or cannot qualify for credit cards.) PayNearMe allows people who don’t have credit cards to purchase goods online via a cash payments service at more than 6,000 7-Eleven stores in the continental U.S. A new company called BuyGoldWithCash is launching as a way to allow people to buy gold bars online using PayNearMe’s service.

Of course, BuyGoldWithCash could be trying to piggy-back on the success of Cash4Gold, which seems to be raking in money. Unfortunately, the gold exchange site has been criticized for offering customers too little money for their gold compared to the spot price at any given time.

Here’s how it works. You can buy gold on BuyGoldWithCash’s website for the current market rate plus a markup (transactions can be anywhere from $50 to $1,000), and you’ll be given a PayNearMe slip to take to a 7-Eleven store. You hand the cashier your slip, and the cash amount, and then the cashier will process the payment with PayNearMe. The buyer will be sent the insured gold via mail. That’s right, they actually ship the customers the gold bars.

But here’s where it gets a little questionable. BuyGoldWithCash makes money by charging a one time $19.99 transaction fee, which includes shipping. Additionally, users will also have to incur a set PayNearMe fee ($2.99 to $4.99) when they make the cash transaction at the 7-Eleven. So essentially a user will have to shell out at least an extra $23 to $25 just to pay with cash.

There are a few red flags about BuyGoldWithCash. First, why would someone who doesn’t qualify for a credit or debit card and/or has limited finances want to spend a ton of money on gold? And if they do, it seems slightly exploitative by preying on poor people and charging a premium. It’s comparable in some ways to the high interest fees credit card companies impose on those who cannot pay their bills.

But founder Ron Lin says that gold is an investment for many Americans and what he calls a “safe harbor”, especially in unstable economic times. But if someone wants to buy gold as an investment, they don’t need to buy actual bars of gold. Unless, of course, they don’t have a brokerage or bank account—exactly the types of people BuyGoldWithCash is targeting. If they really want to buy gold, they may not have many other options.

And with the premium fee, it will be tougher for buyers to make any money on their “investment.” When they eventually sell the gold, buyers will need to turn to a service like “Cash4Gold,” requiring that the price of gold go up significantly to make up for all of the fees associated with both transactions.

It’s too early to tell how BuyGoldWithCash will do, but there is something unsettling about the way that the company is bringing in revenue. I guess it may be able to eek out sales if it can convince enough poor people to part with cash for gold bars. There’s just something about that model that just doesn’t sit well with me.

Update: Lin has issued this statement about BuyGoldWithCash: We believe our offering to be a very fair investment. Owning gold costs nothing beyond the initial shipment. If one buys a mutual fund, there is the $10 etrade fee, then ongoing costs of 1-2% *per year* for the “management” of the fund. As such, invested principal erodes. A person today who wants to buy gold but doesn’t want to use a credit card is basically limited to a pawn shop where they purchase a piece of jewelry of unknown provenance. I don’t see how offering consumers an alternative to the pawn shop can be construed as particularly exploitive.