The Money Store has a deal for bankers.
The home-equity and small-business lending powerhouse has floated the possibility of strategic alliances with banks, enabling them to take advantage of Money Store Inc.'s expertise in subprime markets.
Even though many bankers regard Money Store as one of their more formidable nonbank rivals, some have been intrigued enough to enter into serious discussions.
Marc Turtletaub, chief executive officer of the Sacramento, Calif.-based company, outlined the idea in an address last week to the Bank Administration Institute's Retail Delivery '97 conference in New Orleans.
He said a relationship with a bank could take several forms that go far deeper than the common buying or selling of loans. These include a pure marketing alliance or sharing of customer lists, a correspondent relationship, or a joint venture.
Suggesting that structural and market differences between banks and his company create opportunities for them to complement each other, Mr. Turtletaub spoke of a "possibility for marriage ... . There is a way for nonbanks and banks to coexist and push products through a different distribution system."
Interviewed after his talk, Mr. Turtletaub was reluctant to say much more about the plan, which is overseen by K. Shelly Porges, executive vice president of new business initiatives. Ms. Porges, a former banker and marketing consultant especially well known in credit card circles, joined Money Store this year.
Mr. Turtletaub described the alliance approach as "relatively new" and said some discussions with banks are "heating up."
The program comes as some other subprime specialists-notably United Companies Financial Corp., Baton Rouge, La., and Ford Consumer Finance, Dallas-are looking to deepen their relationships with banks and other lenders. Right now, the ties are based mainly on the banks' referring customers with poor credit to their partners in the subprime field.
At the conference in New Orleans, the Money Store CEO participated in a panel discussion with John W. Bachmann, managing partner of the Edward Jones brokerage firm, and Jack M. Antonini, a First Union Corp. executive vice president who spoke about his experiences with USAA Federal Savings Bank and the monoline card company First USA Inc., now a Banc One Corp. subsidiary.
In their respective specialties, Money Store, Edward Jones, USAA, and First USA epitomize focus. The USAA bank's parent, United Services Automobile Association, was chartered to provide insurance for military officers and their families. Edward Jones has never strayed from its reliance on single-person offices.
While banks have a geographical or regional orientation and the advantage of customer relationships centered on deposit taking, Money Store takes a "business-line approach" and "pushes one product to one customer," Mr. Turtletaub said.
The concept of tight focus went over well, at least in principle, with the retail financial strategists in the Retail Delivery audience. In an enthusiastically received presentation, Harvard Business School professor Michael E. Porter, author of a seminal series of books on competitive strategy, said the best strategies are characterized more by "deciding what not to do" than by "racing to one ideal position."
"Strategy is running a different race," Mr. Porter said. But he also pointed out there is "tremendous resistance to this idea" and few corporations really get it.
Mr. Turtletaub caught the spirit when he said hopefully, "Banks will do one or two things well and outsource other businesses to companies that do those well."
Though a few banking companies got into the subprime lending business through acquisitions, the industry as a whole missed the boom, Mr. Turtletaub said. He contended Money Store's 30 years of experience and specialization in what it prefers to call nonprime lending, with centralized underwriting and an aggressive, highly efficient sales network, can work to mutual advantage with bank partners.
KeyCorp, which has marketing and technology alliances with Auto by Tel, Charles Schwab, OfficeMax, Microsoft, and US West, might have worked with Money Store if it had not carved its own subprime niche, said KeyCorp vice chairman Patrick J. Swanick.
"Money Store certainly has some competencies in that area," said Mr. Swanick, currently head of KeyCorp's electronic services subsidiary. "If we hadn't done it ourselves by acquisition, and if we saw a revenue stream from working jointly with them, it is something we would have considered."
Barry Deutsch, a former marketing director of Mellon Bank and now head of Deutsch Consultancy, Fort Lauderdale, Fla., said Money Store may indeed be on to a big idea.
"Subprime is a very distinct market that requires certain competencies that banks don't innately have," he said. "Also, subprime people have a natural disinclination to go to a bank. They are looking for somebody to say yes to them," and they perceive bankers as likely rejectors.
Mr. Turtletaub pointed out that Money Store may not say yes to all initial calls to its "800" number, but it develops other products to offer the callers-a strategy it refers to as "spillage."
If banks get past their resistance to playing the subprime game and don't want to go it alone, the answer will be a partnership, said Robert Hall, chief executive officer of the Dallas-based consulting firm Action Systems. "It is a question whether a bank can make itself appealing to that segment of the market.
"A lot of those (subprime) consumers hate banks. They assume banks will turn them down or look down on them."
Mr. Hall said one alternative might be to adopt a different brand for subprime activity, similar to the way Norwest Corp. has established a strong identity for its finance company, Norwest Financial.
Mr. Deutsch said First Pennsylvania Bank of Philadelphia, before it was absorbed into CoreStates Financial Corp., did not succeed when it tried to open consumer loan offices under its own name. But he pointed out that subprime lending, in contrast to Internet banking and other high-technology initiatives, "still needs a person to make the loan, and that is a natural strength of Money Store" that banks might be able to tap.
"I would ask what happens when the customer trades up," Mr. Deutsch said. "Does the bank or Money Store own them? I had the same problem with Marketing One or Invest," investment products programs operated on bank premises by nonbanks.
"If it is a one-product sale, the bank may not own the customer," said Les Dinkin, managing partner of NBW Consulting, Westport, Conn. "If the customer is already doing business with the bank and is being helped out, then it should be able to retain the relationship.
A bank venture with Money Store would be "not unlike a relationship with a mutual fund company or annuity provider," Mr. Dinkin said. "It could help some customers and generate some income. The bottom line is there is a clear need in the marketplace and customers are not being served. Banks are literally turning customers away."