There’s a lot you can learn by reading the ads in the newspaper, even if you’re not planning on buying anything.
For example, by pairing a careful reading of a newspaper advertisement from a regional retailing chain with some history of the banking industry, you can come up with some insights into the trends and future of retailers offering financial services to consumers.
Allow us to demonstrate, with an ad from Fred Meyer, the Portland,-based food-and-merchandise retailer that some years back bought the local grocery chain QFC, and later was itself subsumed by Cincinnati-based grocery giant Kroger. Fred Meyer placed a full-color, full-page ad for what it calls money services — check-cashing, bill-paying and money transfers. The company also is promoting a store-branded prepaid debit Visa card.
None of these is an innovative product or service, nor are they particularly unique to one retailer, as we shall see shortly. Nor is the most notable feature of the ad the fact that Fred Meyer is targeting check-cashing with a low promotional rate, although that is of interest given the ongoing controversy over the cost of such services, particularly for the unbanked.
What’s noteworthy about the ad is that Fred Meyer and Kroger believe there’s sufficient market opportunity to make a specific, deliberate effort in organizing and marketing (complete with dedicated webpage) financial services to customers. Neither the ad nor the website give hints as to what might be coming next, but it’s safe to speculate that if Fred Meyer drives sufficient traffic to this limited portfolio of services, it will rummage around to see what else it might add.
In some respects, Fred Meyer is considerably late to the melding of banking and financial services. Banks often refer to their branches as “stores,” and have long incorporated design elements to make those stores look less bank-like and more like a Starbucks that dispenses money instead of coffee.
Retailers have long been intrigued with the concept of offering financial services along with merchandise — to sell stocks along with socks, to borrow the phrase once used to describe Sears’ strategy of offering a brokerage (Dean Witter), an insurance company (Allstate) and a credit card (Discover).
Those are all long gone from Sears — the company has enough problems just being a retailer. But other retailers have delved into financial services in a big way. Take a gander sometime at Costco’s menu of financial-service offerings, including mortgages, investments and insurance, as well as multiple bank-like services for businesses.
Such was the interest of retailers in financial services that for a while the banking industry made it a policy priority to block attempts by large retailers to get into the business, as was the case when Walmart sought an industrial-bank charter (so that it could, it said, make it easier to process credit and debit transactions).
You don’t hear much about that issue these days, in part because the banking industry has been a bit distracted the last half-decade by its own difficulties, and because retailers have figured out they can offer financial services without actually owning and running a bank.
For a while retailers accomplished that by having bank branches physically in their stores. That trend appears to have run its course in terms of growth, but retailers have learned that partnerships with existing financial-service providers work even better, especially with the rise of Internet-based retailing.
Walmart pared with American Express to offer Bluebird, which provides consumers with just about all the services they’d expect from a traditional bank. Fred Meyer’s debit card is issued by U.S. Bank; money transfers are provided by Western Union.
This approach works well for both sides; retailers get more services with which to attract and retain shoppers, banks and other financial-service providers get fee income and access to consumers who aren’t ordinarily their customers.
But as both retailers and bankers can attest, markets don’t stay static, particularly those that outsiders perceive as opportunity rich and competition poor. The next iteration of alternative financial service providers is likely to be one of the tech giants, a Google perhaps or an Amazon.
This wouldn’t be new. Years ago Microsoft, pairing its dominance in desktop software with the Internet, was seen by bankers as the looming threat. Things didn’t work out that way. Still, the competitive threat never changes, only the names posing it do.
And that could make the ultimate winner … you, if this competitive scramble means more services offered more conveniently at less cost. It will, however, require you to pay more attention to keep track of the constantly changing and growing array of would-be and quasi-bankers — the grocery store, the warehouse-membership retailer, your Internet service provider, the hardware chain, the oil-change place, the fast-food hamburger joint. …
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at firstname.lastname@example.org.