The world is changing rapidly. How many times have you heard that adage?
For anyone over the age of 40 that seems like an obvious statement. We’ve seen men land on the moon. Computers become powerful miniature devices that we cannot live without. Cell phones were originally envisioned as Dick Tracy’s wristwatch or Maxwell Smart’s shoe.
In the financial services world there are also changes occurring that no one ever thought would happen. Futurists and science fiction writers predicted the day when we would be a cashless society – and we all laughed. And while we may not see a cashless society in our lifetime, there is no doubt that electronic payments have rapidly changed the face of our industry. In the last ten years alone we have seen the introduction of small dollar, short-term loans change the face of the industry. We have seen the introduction of prepaid debit cards go from something that consumers did not understand to a device that is now estimated to be in the hands of 6 billion users who loaded more than $140 billion according to a recent Federal Reserve study. The study also indicated that this was the smallest, but fastest growing payment category, up 22% from 2006 – 2009. What’s more, the amount of money loaded onto the cards is expected to reach $552 billion in 2012 from $330 million three years ago, according to the Mercator Advisory Group, a research firm. Seems like a real opportunity.
While these two items held the hope of being the next silver bullet in terms of bringing revenue and profits to an industry that has lived too long on a single product model, there are probably very few readers that could make a case for a successful business model over the next ten years based solely on either one of these products.
The alternative financial services industry is currently at a redefining crossroads. Most businesses have one or two products that comprise 85% or more of revenue. If one or heaven forbid, both of those products were to go away in the next few years, these operators would be out of business. This is an issue that I am sure keeps many of you up at night.
The real challenge is that while the under-banked population is growing in numbers, the traditional services being offered are not able to effectively capitalize on the opportunity. Additionally, new forms of competition are looking to enter the financial service space serving customers that don’t like or want to use banks. Large chain retailers like Wal-Mart and Sears Holdings have already entered the check cashing and money services arena as have several large grocery chains like Kroger and Safeway. They are all vying for the shrinking pie of check cashing. On the loan front, banks and credit unions are lurking around the fringes of this space. They see the opportunity in the demand for short term, small dollar loans but will likely never be back in the payday advance space. Once the code is cracked on how to make a profitable product, they are highly motivated to find new revenue sources in this highly regulated and uncertain environment.
So how do you plan for the future?
How do you make sure you business is relevant to your customers five, ten or even twenty years from now?
Well one thing we do know for sure is that your customers like the services that you provide! Multiple surveys of consumers visiting and using alternative financial services centers are very happy. According to FiSCA consumer studies conducted in 2000 and 2006, customers are very happy with the quality and perceived value of doing business in financial service centers consistently scoring high satisfaction levels of 2/3 to 3/4 of consumers surveyed responding to these areas positively. Banks could only wish to have the kind of customer satisfaction ratings our industry receives, especially in the current environment.
Then how do you continue to experience the type of success that you have traditionally enjoyed with the single product models of the past? In a word: diversification.
Today’s consumer is, if nothing else, time starved. They already trust you to provide good service at a good value. The more that they can do in your stores to handle their personal business needs, the easier you will make their lives … and this will not come from a single product offering as it once did in the past. Today you need to be the supermarket of financial services to your customers. The more that they can accomplish in a one-stop shopping experience, the more they will continue to do business with you.
Carefully consider the mix of services you offer, balancing traffic generation with good margins. The consumers using your services have needs for a variety of services regarding their personal business. Tax preparation, auto insurance, title/tag services, cash for gold, legal document preparation, discount prescription plans, internet cafes, small business centers, cash & coin services … these are all potential opportunities that could be fit into the current retail distribution platform and reach thousands of qualified prospects daily. Even modest close ratios like 10% – 15% could result in a viable business model given the margins available with these types of services.
This consumer is also far more prepaid savvy. If you don’t have a solid prepaid debit card program in place, you will lose this consumer to direct deposit once their government benefits check, and eventually their paycheck goes away. Can you move them to a check-based direct deposit program that keeps them coming to your stores? What other services will they come to you to access?
Want to learn more about these opportunities? Be sure to attend the FiSCA Annual Conference and Exhibition where more than 100 vendors providing product and service offerings to your customers are on hand to show you their wares and how it can fit into your business model.
With the pace of change moving as rapidly as it does today, you need to look outside of the box that may have been your business model in the past. If you stand still, the market will pass you by quickly.