April 07, 2004

Financial Services C-Stores

Change May Signal New ATM Plans At 7-Eleven
Retailer has stopped installing Vcoms; a vendor opts out

American Banker Tuesday, April 6, 2004
By David Breitkopf

Could 7-Eleven Inc.'s abrupt announcement that it had switched one of its vendors signal more-serious problems in its in-store banking program?

7-Eleven has articulated a bold financial services strategy - going back to early 2000 - that centers on installing Vcom-branded e-commerce kiosks in convenience stores around the country. But on Friday it said that it had engaged a new vendor to supply the kiosk's highest-profile feature, payroll check-cashing.

Meanwhile, two analysts who cover the previous vendor, Certegy Inc. of Alpharetta, Ga., said that it had pulled out of the project because Certegy had been losing money on it. The analysts also noted that 7-Eleven had halted its rollout of Vcoms.

7-Eleven confirmed that it stopped installing Vcoms in July. The company attributed Certegy's exit from the project to the fact that the vendor is more accustomed to servicing higher-volume markets.

And in a press release, the retailer sang the praises of its new vendor, CashWorks Inc. The company said CashWorks has good risk management, and expertise in convenience stores. Like 7-Eleven, CashWorks is based in Dallas.

Certegy and 7-Eleven - who plan to continue to do business with one another in a different service area - said the decision to dissolve the Vcom contract was mutual.

Neither Certegy nor 7-Eleven would say whether the Vcom program was meeting expectations, but the two analysts said it has been a flop.

Carla N. Cooper, an analyst with Robert W. Baird & Co., said that in the third quarter Certegy had talked about investing about $1 million in marketing for its partnership with 7-Eleven.

"It was clear from the tone of" subsequent the "comments" of a subsequent conference call " that it was not exceeding expectations and perhaps dragging a little bit," Ms. Cooper said. "The conclusion I'd come to is they didn't feel those dollars achieved the returns that they were looking for."

Robert J. Dodd, an analyst for Regions Financial Corp.'s Morgan Keegan & Co., said Certegy and 7-Eleven had to spend more money on marketing than they had budgeted.

Check-cashing generates only $15 million of Certegy's $1 billion of annual revenue, Mr. Dodd said. "Basically, to continue growing that business, they would have to have spent more money."

Certegy signed an eight-year contract with 7-Eleven in 2001 but by July it will hand over the job to CashWorks, which General Electric Co.'s GE Consumer Finance division acquired this year. Certegy said that the decision reflected its desire to focus on supermarket and casino clients rather than convenience stores.

It will continue to provide 7-Eleven's 2,000 company-owned stores with check warranty services at the point of sale, but only for personal checks, not the payroll checks it has been cashing at Vcoms, said Mary Waggoner, a Certegy spokeswomanshe said.

"The fact that we signed this new agreement with 7-Eleven demonstrates that we have a good relationship with them," she said.

Certegy, which provides the same warranty service for Wal-Mart Stores Inc. and Safeway Inc., has been migrating toward traditional supermarkets and the gambling industry, Ms. Waggoner said. It bought Game Financial Corp. from Viad Corp to enter the check-cashing market for the gambling industry, she said.

"We're really shifting our payroll check cashing into other industries where we have a stronger foothold," she said.

Carole Davidson, a 7-Eleven spokeswoman, said it would not discuss Vcom's financial performance, but she did say 500,000 consumers have signed up for Vcom cards, which let them cash payroll checks at the terminals.

The retailer had said it planned to install 3,500 Vcoms, but Ms. Davidson said Friday that there are currently no plans to add to the 1,000 Vcoms that have been installed in 13 states. The rollout began in late 2002 and ended in mid-2003, she said.

Ms. Davidson did talk about Certegy's possible motives for getting out of the contract.

"It sounds like they're pursuing some other high-usage industries," she said. "While we think we've got some great traffic and we're building this business, when you think about a grocery store and how large it is and how many customers it serves, it may be a little bit different than a 7-Eleven store."

Vcom terminals can conduct many types of transactions not available at the automated teller machines typically found in retail stores. For instance, the Vcoms accept deposits, cash checks, and can conduct money transfers.

"We chose CashWorks because they specialize in cashing payroll and government checks, expertly applying their risk-decision methodology in the convenience store channel," Brady Giddens, 7-Eleven's managing director of Vcom, said in a press release.

NCR Corp., the Dayton, Ohio, company that manufactures the Vcom, is planning to offer a generic version of the terminal, Convenience Connexion, to other merchants and possibly banks. Mark Leinenkugel, the director of business development at NCR, said Certegy will provide payroll check-cashing for those terminals.

Posted by Craig at April 7, 2004 12:52 AM