Financial Service Opportunity

Article by Frost and Sullivan on the opportunity for self-service kiosks in the financial services market.

In his seminal book, "Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits", management guru C.K. Prahalad expounds on serving the market comprised of the world’s four billion poor, as a route to fulfill social imperatives and profits. Global growth consulting company, Frost & Sullivan believes that Interactive Kiosks, which ease the economic and physical bottlenecks of distributing financial services, such as check cashing, bill payment and money transfers, have the pyramid jewels in their range. This article seeks to present a background to financial service opportunity for self-service kiosks, even in a developed nation such as the US.

The 2001 Federal Reserve Board Survey of Consumer Finances estimates that around 12.7 percent of U.S. households are "unbanked", or not in possession of a checking account.

Therefore, almost 12 million households make up a definite block of the "bottom of the pyramid" in the U.S.. According to the Financial Service Centers of America (FiSCA) (the trade organization for check cashers) there are approximately 11,000 check cashing centers in the U.S.

These centers cash more than 180 million checks annually, at a total face value exceeding $55 billion. The check cashing charges range from one percent to 10 percent depending on the type of check (government, payroll, or personal), the amount of the check, and in some states, possession of proof of ID for the customer. Check cashing services in 18 states are unregulated. Frost & Sullivan estimates the size of the check cashing industry at approximately $2.5 billion.

The U.S. Department of the Treasury has designed an Electronic Transfer Account (ETA) in order to offer affordable services geared to match the financial habits of the un-banked population; The ETA eliminates the burden of depositing minimum funds to open an account, mitigates the strain of maintaining the average minimum balance, and protects against the common prospect of bounced checks and its associated charges. The ETA ensures that individuals who are required to receive federal payments electronically have access to an account at a reasonable cost (no more than $3 a month) and have the same consumer protections available as other account holders at the same financial institution. ETA is available at around 18,000 banking branches in the U.S.

So where is the opportunity for kiosks? ETA does not solve the issues of banking in a convenient neighborhood location the way a kiosk does. ETA does not address the needs of immigrants who are not eligible for federal payments. Frost & Sullivan’s analysis on the "North American Interactive Kiosks Markets" assesses a significant opportunity in this context that ETA does not fill. In addition to offering convenient access by being centrally located, kiosks can be available 24/7 and can be programmed to speak the language of the customer. Furthermore, kiosks do not discriminate against users that are not U.S. citizens. Frost & Sullivan believes that in 2005 more than 5,040 new banking and finance kiosks will be installed worldwide. While banks and financial institutions deploy kiosks to service their customers, more than 7000 Telecommunications kiosks will be installed in 2005. A large portion of these telecommunications kiosks will be deployed to accept payments for landline and mobile phones. Although many carriers are experimenting with deploying their own kiosks to accept payments, they are simultaneously working with vendors of shared-use kiosks where users can pay bills, buy prepaid cards, and conduct other business. Confidence in the self-service kiosk industry reached rock bottom after a series of project failures around 2001. Nevertheless major investments by companies like Home Depot in-self service technologies are bolstering industry confidence and proving that self-service can be profitable.

Some key industry projects include:

• 7-Eleven’s Vcom network is comprised of 1040 kiosks that accept payment for the payment of utility bills, prepaid long distance, Verizon residential phone services and 7- Eleven’s E-Cash prepaid MasterCard, in addition to check cashing and money order purchases.
• QuikTrip convenience stores, spread across 446 retail outlets in nine states, is rolling out bill payment kiosks in 34 stores allowing customers to pay bills to a reported 4,400 companies including utilities, cable and phone-service providers.
• Blackstone’s Prepaid Stop kiosk includes leases, purchases, rentals or shared revenues. The Prepaid Stop offers prepaid wireless services of AT&T, Cingular, T-Mobile, TracFone, and Verizon as well as regional carriers AirVoice, AllTell, Beyond Wireless, Boost, Hargray, i-wireless and Omni Prepaid. The service has been deployed in supermarkets, drug stores and larger convenience stores along the East Coast over the past year.
• At the Coinstar Centers, customers can replenish prepaid wireless accounts of Alltel, AT&T Wireless, Cingular, T-Mobile and Verizon and reload prepaid Truth MasterCard cards. Employees of participating companies can obtain printed wage statements, balance inquiry and payroll cash vouchers.
• The 495 strong E-Wiz financial service kiosk network developed by Infotouch Technologies has been deployed in partnership with ExxonMobil in North Carolina, with Kum & Go stores in Tulsa and Oklahoma markets and with NOCO Express in New York.

These and other projects are demonstrating that consumers want more convenient means of conducting transactions. These projects show that self-service will enable companies like mobile phone carriers to expand their customer base and collect payments outside their normal hours of business, and beyond their normal storefronts. Simultaneously, these projects are showing that collecting payments at kiosks is creating a lucrative business for a variety of kiosk owners. In the same way that the majority of an iceberg is below the water, the opportunity to serve the unbanked may not be immediately obvious. Nevertheless vendors up and down the value chain, from service providers, to site owners, to kiosk vendors will all see growing revenues from serving the unbanked.