Embracing Financial Services
Roundtable discussion tackles elusive profit center, suggests growing opportunity
ORLANDO, Fla. -- While the logistics of offering financial services at convenience stores has always been a barrier to retailers, participants at last week's CSP Financial & Prepaid Services Forum noted that the current credit crisis has put millions of additional consumers into the target demographic.
"In the past eight months, the world has changed," said Robert Ross, director of business development for Green Dot Corp., Monrovia, Calif. "The unbanked are estimated at 80 million, but now there's 40 million [more people] affected by the credit crisis."
The target [image-nocss] demographic has gotten much bigger, but so has the problem of marketing, with Ross adding that those 40 million new consumers are more sensitive to fees. "The underbanked are used to paying for financial services," he said. "But the next 40 million are used to getting those services for free."
Taking advantage of an emerging demographic comes with obstacles that begin with packaging the product and end with the training, infrastructure and logistics needed to offer financial services, participants said. Retailers over the past few years have found offering full-service bill payment, money orders and check-cashing services comes with the burden of additional labor and in-store expertise. Many have hoped that prepaid credit and debit, and other self-serve options may be the solution.
But education and messaging have emerged as significant challenges. "One of the keys is messaging and targeting the retail environment," said Karen Sobie, vice president of retail sales for nFinanSe, Tampa, Fla. "It's something that we have to coordinate through our aggregators that we don't just stick a card on a rack. We can't just put a facing up and expect the card to sell. Consumers don't understand [the product]."
In addition, Sobie noted how relevance and positioning are critical. "You can have the same core product but you position it differently to the Hispanic community vs., say, students. It's [about] how you make it relevant to the end consumer."
Packaging, signage, television and radio advertising and even moves by Bentonville, Ark.-based Wal-Mart into the space help customers understand the product, so that buyer educationand ultimately employee educationbecomes less of an issue, Ross of Green Dot said.
For retailers wanting to position themselves for this evolving market, Patrick Brown, executive vice president of emerging markets for NetSpend, Charlotte, N.C., reminded attendees that once they get someone to use the service, "you own that customer for the life of the card."
"A big part of this business is reloads," said Ross. "It's a financial relationship retailers can build. So retailers have to ask themselves, 'Where does the customer want to come back to reload?' And it's [the convenience store] or the big box."
Whichever way retailers decide to play the prepaid and financial-services category, the choices are difficult. "It's like foodservice; you're either in or you're out," said Eric Mettemeyer, president, PaySpot, Leawood, Kan. "You can still make money, but you'll only be making a fraction of the [potential] revenue."
While financial services and new prepaid products may be a focus to some retailers, others in the industry suggest revisiting core products such as long distance and prepaid wireless.
"What's forgotten is how the profit for international long distance is growing and business continues to [increase]," said Frank Squilla, senior vice president of sales for InComm, Sewell, N.J., adding that changes with some phone companies have opened up better rates to countries like Mexico. "It might only be 5% of sales, but it's triple the profit. The business has doubled in 10 years, going from $2 billion to $4 billion."
Mike Skinner, general manager, Coinstar, Bellevue, Wash., said while focus on new, emerging products is important, so is keeping an eye on core categories. "We're looking at taking care of our existing [business] and [targeting] retail compliance and keeping stores in stock."
Thirty-four retailers and suppliers attended CSP's Financial & Prepaid Services Forum, which was held in conjunction with the 2009 Prepaid Expo at the Orlando World Center Marriott.
For more on the discussion that emerged from this conference, watch for the May issue of CSP magazine.