Kmart plans to attract a bigger portion of the underbanked crowd by beefing up its walk-in bill-payment and prepaid debit card offerings.
The retailer also wants to capitalize more heavily on the fact that its stores, built in densely populated areas, could serve as a local financial headquarters for many underbanked consumers, Keith Brand, vice president of alternative financial products for Kmart parent Sears Holdings Corp., tells PaymentsSource.
"Most of our stores are in urban areas where we have a lot of customers who prefer to deal in cash," Brand says. "Our goal is to introduce more financial services, in various categories, and to become a destination for these consumers."
The Hoffman Estates, Ill.-based discount merchandise chain this week rolled out an improved walk-in service across its 1,200-plus stores nationwide, positioning it to compete more directly with rival Wal-Mart Stores Inc. for customers that deal primarily in cash.
Kmart within the next few weeks also plans to introduce key "improvements" to its reloadable prepaid card products, Brand says.
Consumers' growing enthusiasm for prepaid cards and merchants' desire to benefit from favorable interchange fee structures create "a race among merchants and financial institutions to win market share," Mark Schwanhausser, senior analyst at Javelin Strategy & Research, tells PaymentsSource.
Kmart for the past few years has offered reloadable prepaid debit cards from Green Dot Corp. It also previously offered walk-in bill-payment through Western Union Co., whose various products, including money orders and funds-transfers, it continues to offer (
The retailer's new bill-payment service, from Fiserv Inc.'s CheckFreePay, enables customers to make payments to some 3,000 billers nationwide for $1.50 or less, using cash or a PIN-debit card. Most bill payments initiated before 7 p.m. are paid the next day, Brand says.
Wal-Mart in 2009 began offering its customers a similar service from Fiserv (
Kmart offers its service for a flat fee, whereas Wal-Mart charges 88 cents for bills paid within three days and $1.88 for bills paid the next day.
Most consumers will perceive Kmart's pricing to be cheaper because the vast majority of those walking in to pay bills with cash want their payments applied within 24 hours, Brand says.
Pricing on bill-payment services may become an important competitive lever, Schwanhausser says.
"Kmart needs to stand out ... and undercutting competitors on next-day delivery is smart because many Kmart customers are stretching from paycheck to paycheck, and last-minute payments are crucial to making their finances work, but painfully costly at times," Schwanhausser says.
Despite being a few years behind Wal-Mart in offering a very similar service, Brand says there is "significant opportunity" to expand its payment services, as a growing number of younger consumers appear to prefer to use cash even as the economy climbs out of the recession.
"We believe there are a lot of folks out there in the younger generation that are looking for an alternative to traditional banking relationships, who want to have a single, local spot like Kmart where they can shop, pay bills and conduct other transactions," Brand says. "We are already in their neighborhoods, and we are getting a good response to existing products we offer them."
