Chain Stores Becoming Banks for the Unbanked?

By Keith Brand - President, Tefisto Partners

Another Friday Night at the Circle K

Michael has just gotten off of work at the auto body shop after a long tough week.  But tonight, he's meeting up with the guys, and they're going to blow off some steam. 

But first, Michael has to take care of a few things before he can truly relax and be worry free for the weekend.  So he stops by the local Circle K on his way home, his weekly paycheck safely tucked away in his wallet.

"Hey there, you look like you need a nap!" exclaims Judy, the Circle K clerk who recognizes Michael immediately, since he comes in almost every night for something.

"Nah, Ill be OK, but sure was a long week" he tells Judy, as he fumbles for his check.  "Gotta load up my card for the weekend - here you go," he says, as he hands her his paycheck, ID and prepaid debit card.   "After you cash it, let's do a $50 Virgin Mobile card, and I also need to Western Union $200 to my sister again.  Oh, and can you grab me a pack of Marlboro Lights?"

More Than Beer, Cigarettes & Soft Drinks

What's going on here, on just another Friday night at the Circle K?  Check Cashing?  Money Transfer?  Prepaid Wireless?  All with a pack of smokes?

Michael is just one of millions of Americans, estimated at 30% or more of the US Population, who is "Unbanked" conducting financial transactions outside of the mainstream, either by choice or necessity.  Some call this activity "Fringe Banking".

This population cashes their paychecks, wires money, loads value onto prepaid debit cards and wireless phones, and pays their bills in person.  These "cash preferred" individuals either don't have a bank account, or if they do they don't use it regularly.  Instead, they've handled their financial matters using non-traditional means, such as at one of America's 10,000-plus check cashing locations.  But now, through the point-of-sale network found at most retailers, they'll soon be coming to a chain store near you.

Convenience stores will soon realize they're not just in the Beer and Cigarette business.  McDonald's and Taco Bell will decide that burgers and tacos aren't enough to satisfy their customers, or their shareholders.  Blockbuster Video and the Post Office will soon come to understand the value of their store count and traffic.  And all of them will excitedly look to the hundreds of millions of dollars in sales and profit increases offered by these services targeting the Unbanked.  These locations will quite simply become "Banks for the Unbanked".

The Unbanked - 40 Million Strong

US socioeconomic trends have caused a significant upswing in the demand for new financial instruments and offerings, focused on the Unbanked.  Consider:

• 31 Million US individuals over age 20 are seen to be as having a "poor credit" rating (Morgan Stanley)
• 34 Million Americans are living in poverty (US Census 2004)
• Over 9 Million US households do not have bank accounts, or 40 Million individuals (FiSCA)
• 50 Million US adults don't have credit cards (Pelorus Group)
• 20% of US Households pay bills in person (Checkfree)

This population visits chain store retailers just like the rest of America, but chain store retailers are not satisfying their needs today.  However, the electronic point of sale infrastructure found in nearly all stores can now be leveraged to deliver and process these new services, including but not limited to:

• PREPAID WIRELESS: This market has exploded from $4.5 Billion in 2000 to over $23 Billion in 2004 driven by youth, minorities and "unbanked" customers.

• PREPAID DEBIT CARDS: Currently a $600 Million market, Pelorus Group expects it to grow to over $5 Billion by 2007.  Next Estate reports that 65% of Prepaid Debit users are under 35 years old.

• PAYROLL CHECK CASHING: FiSCA reports that this $60 Billion industry process over 180 million checks a year, growing 10% annually

• WALK-UP BILL PAYMENT: Checkfree reports that 20% of American households regularly pay their bills in person

• MONEY TRANSFER: Celent expects the global Money Transfer market to surpass $170 Billion in 2006.  InterAmerican Bank reports that over 60% of foreign born US Latino adults send money back home regularly.

One Stop Shops

Michael was able to head out for a stress-free Friday night after quickly taking care of his financial needs (and picking up a pack of smokes) at his local convenience store.  One-stop-shops like Circle K with safe, accessible and convenient locations will win in this space, allowing their Unbanked customers to pay their bills, cash their paychecks, transfer money, and load value onto stored value cards and products, all while shopping for the products they would normally expect to find.  

Keys to retailer success are well trained employees, a point of sale infrastructure that is enabled to process the myriad of transactions, a comprehensive product and service assortment, clear and concise bilingual communications, and a vision from the top that satisfying the needs of the Unbanked customer is of the utmost importance to the future of the company. 

Banks for the Unbanked.  Coming to a chain store near you.

About the author:

Keith Brand, President of Tefisto Partners, formerly served as Director of Category Development for the Prepaid Telecommunications and Financial Services categories for Circle K Stores Inc.  Mr. Brand's firm advises Processors, Distributors, Product and Service Providers and Chain Store Retailers on how to achieve fast track results and competitive advantage in the Stored Value and Fringe Banking space, targeting the Unbanked consumer.

CONTACT INFORMATION:

Keith Brand

President

Tefisto Partners, Inc.

602.750.8055

http://www.tefistopartners.com