Banking With a Big Gulp
To cash her paycheck each Friday, Kimberly Ruggiero used to endure a 30-minute wait at her bank. Now the 22-year-old, a hospital inventory tracker, stops for the same chore at a 7-Eleven in Tampa on her way home from work. Using an ATM-like kiosk, she cashes her paycheck in minutes. "It's extremely convenient and fast, and I don't have to wait in line," says Ruggiero.
7-Eleven may be best known as the place to buy a Slurpee, pick up a gallon of milk, or grab a coffee and doughnut. But the company also sells $4.5 billion worth of money orders each year, and, after Wal-Mart, the convenience store chain is the second-largest retailer of prepaid telecom products, such as phone cards and prepaid phones. In fact, over the past several years, 7-Eleven has been experimenting with a host of other consumer financial services, from cashing paychecks to paying utility bills, hoping to build in-store traffic. "We made it more convenient for the customer to make coffee the way he wants it and get in and out of the store quickly," says Rick Updyke, vice president of the chain's business development. "Now we're making access to financial services more convenient, creating bundled financial services, and offering a one-stop- shopping destination for existing customers and new customers."
That one-stop destination is centered on a machine called the Vcom, which is short for "virtual commerce." Looking like a souped-up ATM, the 8-by-4-foot custom-made Vcom station now resides in more than 1,000 of the company's 5,300 domestic stores. Ultimately, the chain plans to install Vcoms in most of its U.S. outlets, part of the company's strategy to increase in-store consistency across the country.
To bank, a customer signs up for service via a Vcom phone, which connects him or her to a live operator. The customer provides an ID and personal information like an address and a Social Security number, which is verified immediately. Then a small camera in the Vcom takes the customer's photo, and the customer chooses a personal identification number and receives a membership card.
Quick money. To cash a check, the customer inserts the card into a slot, enters the PIN, and keys information about the check on the touch- screen. CashWorks, a 7-Eleven partner, conducts an authorization check--comparing the person at the Vcom with the photo on file, for example--and authorizes or declines the check. The process takes about 90 seconds. Once a check is approved, the customer can choose to cash it or engage in another transaction, such as paying a Verizon phone bill, buying a Western Union money order, or loading money onto a prepaid, stored-value MasterCard.
The target customers for the financial services are the "unbanked," the estimated 10 percent of the U.S. population who don't have a bank account and who use cash or money orders to pay their bills. Another category of target customers is the "underbanked" --a person like Ruggiero who, for example, uses her bank account primarily for savings.
Eventually, 7-Eleven hopes to have a roster of financial services to rival any bank's. Most recently, the company worked out a deal with tax preparation firm H&R Block that allows customers to cash refund anticipation loan checks. In the future, 7-Eleven expects to partner with banks to allow customers the ability to check account balances and make real-time deposits. The banking industry doesn't appear threatened. "Anything that gets the 'unbanked' into the financial services system is a good thing," says Tracey Mills, a spokesperson for the American Bankers Association.
Food first. 7-Eleven reported revenues of $12.2 billion last year and boasts an impressive record of 34 consecutive quarters of same-store sales increases. Although the company declines to break out the numbers on Vcom, it acknowledges that income from financial services is still only a small fraction of the company's overall business. Goldman Sachs retail analyst John Heinbockel expects that for the next five to 10 years, other revenue categories--especially gasoline, beverages and snacks, and fresh food (such as deli sandwiches and baked goods)--will continue to be more important than banking. But Vcom services "generate incremental revenue on their own, and they have the potential to generate some merchandise sales," says Heinbockel. "Over time, they will play a bigger role."
If convenience is the upside to banking at 7-Eleven, the downside is that you'll pay for it. Each service exacts a fee, typically $1.50 for paying a bill, for example. Check-cashing fees are based on the face value of the check, usually 1 percent to 3 percent, depending on the region of the country--a bit lower than those charged by check-cashing outlets. Consumer advocates advise paying close attention to the fees. Consumer Action's Linda Sherry points out that the markets for these types of services are "vulnerable populations who don't have a lot of money to spend on these kinds of financial services." 7-Eleven counters that it offers an alternative for people who want round-the-clock access to financial services that is more convenient and often less expensive than its competitors' offerings.
Back at the 7-Eleven in Tampa, Ruggiero agrees, pointing out that the $3 charge she pays is $2 less than what she used to fork over to check-cashing outlets. Best of all, now she has a little time and a little money to spend on her favorite 7-Eleven snack: a Hot Pocket and a Diet Pepsi. Talk about handy.
This story appears in the April 25, 2005 print edition of U.S. News & World Report.