Milk, Bread, Pay Cable Bill

For years, banks have heard that they are in danger of becoming disintermediated by non-bank competitors. Though banks have held off the assault quite well, there is growing evidence that many retailers are incorporating financial services as part of their core offerings. However, the Center for Financial Services Innovation (CFSI), a Chicago-based advocate for the underbanked, suggests that the trend may present an opportunity for banks.

While some retailers partner with financial institutions, others opt to try it on their own. "Retailers who go it alone are the ones who have staked out financial services as a potential secondary but core business," says Jennifer Teschler, director of CFSI. "Many of these corporations have a person in charge of overseeing financial services for the company."

However, these stores often cater to the unbanked and underbanked market. According to CFSI, there are 22 million unbanked households in the U.S. and millions more fall into the underbanked category.

Info Touch (Burnaby, Canada) has targeted that market in a big way. The developer of financial services solutions for kiosks created the TIO Network, a national multiretailer network of financial services kiosks. Its 600 locations in North America are visited by 230,000 users per month, claims CEO Hamed Shahbazi.

The company, which has been in the kiosk business since 1997, originally designed kiosks to provide consumers with fee-based Internet access. In 2002, says Shahbazi, Info Touch's business model changed to facilitate financial services through the devices. Now, the kiosks enable users to pay their utilities bills in cash, obtain pre-paid phone cards and use Western Union money transfer services, among other functions.

According to Shahbazi, the machines work "like an ATM in reverse" because they accept cash, a vital service for those who do not maintain a regular bank account. Users can pay their cable bills, for example, at an Info Touch-enabled kiosk in cash, and, since the kiosk is integrated with the utility's billing system, the customer account is updated in real time.

Info Touch primarily partners with convenience stores - including Circle K, ExxonMobile and Speedway - to reach its customer base. "Heavy convenience store users ... are more likely to be underbanked or unbanked," Shahbazi explains. "The convenience retail business is a huge industry - we don't have to go outside it to do well."

Shahbazi's long-term strategy is to make Info Touch's TIO Network brand as familiar to the unbanked as STAR is to those with bank accounts. But, going forward, he hopes to provide services to mainstream consumers, as well. "We plan to link to the shared networks to provide services for banked people, too," he says. "But long term, we want to help the underbanked people become banked."

This is where financial institutions come in, according to CFSI's Teschler. Rather than view the trend as a threat, banks can use it as an opportunity to expand their reach. Partnering with retailers will help them "broaden their footprint and their access points," she remarks. "To reach this particular market segment, a branch isn't always the best front door."

Banks should view retailers as a first step for consumers who currently do not bank, suggests Teschler. If a bank forms a relationship with a retailer, when consumers are ready for more services, the bank will be right there, whether it's behind the scenes or up-front. "It may not be the right strategy for every financial institution, but it could be worth it for some to capture the next generation of customers," Teschler says.