The News Desk
The Market Trends that are driving this Industry:
In 2006 the number of debit transactions exceeded the number of credit transactions for the first time in history reaching 26.5 billion transactions in 2006.
Identity theft, payment processor system breaches and online intrusions into credit card files are at an all-time high.
Alternative payment services are growing at a rate, which a new report by Packaged Facts estimates to be 33% over 2006, reaching $37.3 billion in 2007.
Many small retailers and online businesses do not qualify for merchant processing services due to bank restrictions and credit card processing policies.
The cost of purchasing or renting POS transaction equipment is too expensive for many small and home-based retailers.
Banks are increasingly denying services to small, independent payday loan, check cashers and car title loan companies. These are capital-intensive businesses with high return on investment.
Market Analysis
The Domestic USA Stored-value ATM/Debit, Stored-value Debit MasterCard® card, and International Stored-value ATM/Debit card accounts from First Equity are early entry products and services in a rapidly developing industry. Approximately 75% of the people in the world cannot obtain a debit card or a checking account. A recent study by PriceWaterhouse Coopers for the United States Treasury department found that over 40% of the U.S. workforce has no bank account. An additional 12% with bank accounts are denied a debit card. This large number of “Lost Consumer” market (“un-banked” and “under-banked”) individuals and families has risen more than 28% in the last three years. These individuals and families are shut out of many basic financial transactions and must pay much higher fees than the banked just to conduct normal financial business.
Carl Pascarella, President and CEO of MasterCard USA characterized the “Lost Consumer” market noting, “… Consumers worldwide spend approximately $8.1 trillion in cash purchases. Twenty-two percent of that amount - or $1.8 trillion represents purchases of $10 or less, indicating an enormous untapped market for new card products like the stored value card”. Forecasts and current statistical reports by experts indicate Debit Card Account Programs are the future of consumer payment options. The US Commerce Department’s report “Emerging Digital Economy” predicts that by 2004, internet commerce will surpass $300 billion and that debit cards are expected to account for 15 to 20 percent of these web based transactions. It also points out that Electronic Commerce (e-commerce) isn’t just for large scale companies. Small businesses that used to perceive Debit Card Accounts (Stored Value) as insignificant are recognizing the savings and additional revenue source potential.
The vast majority of the worlds un-banked are migrant workers from “lower-middle income countries”. The International Monetary Fund reported that “workers’ remittances”, “migrant’ transfers” and “compensation of employees abroad” from the United States had a growing impact in countries around the world. The United Nations reported that remittances are a major source of foreign exchange and are an important addition to these countries gross domestic product, by over 10% for countries like El Salvador, Jamaica and Nicaragua. Worldwide, remittances to developing countries increased from $54.6 billion in 1995 to $72.3 billion in 2001, representing a 32 percent increase over the six-year period. According to the Inter-American Development Bank, remittances grew an additional 17.6 percent in just 2002. Over three-quarters of these worldwide remittances originate in the US.
Remittances from US migrant workers to Mexico were $9.92 billion, over 30 million transactions averaging $328.00 each in 2002. Remittances from US to Central America per migrant were $1,260.00 per year. The rate of growth of remittances exceeds growth in overall per capita income in US, Mexico and Central America.
(Source: Pew Hispanic Center, 2002)
Recent Market Data Research Study*
Major Findings:
* In the United States, there are now 11,300 check cashing outlets, 22,000 payday loan stores, 335,000+ money transfer agents (worldwide), and 11,800 pawnshops. The number of payday loan stores in particular has soared 400% since 1999. Many check cashing outlets and pawnshops have added payday loan services in recent years. Payday loan services have come under the greatest scrutiny for their practices. This is the youngest segment of the industry.
* Marketdata estimates that the four total combined businesses generated $15.4 billion in receipts in 2004. Revenues are forecast to grow 8.4% annually for the group as a whole to 2008.
* Check Cashing was a $1.68 billion industry in 2004 that is loosely regulated by the states. The average fee is 3-4% of a check's value, but many in the market are concerned about the entry of Wal-Mart as a new competitor. The typical outlet only grosses $149,000 per year. More competition is coming from mobile vans that travel to worksites, self-service machines, pawnshops, and payday lenders.
* Payday Loan outlets soared from 5,000 in 1999 to 22,000 today. This is now a $4.74 billion industry. The top three chains are publicly-owned companies that operate 3,000 outlets. They capture a major share of receipts. Payday lending is a relatively new business that took off in the late 1990s. Receipts are growing nearly 15% per year.
* Money Transfer Services is a booming business, growing 80% since 1999 to $4.1 billion in 2004. It has grown by serving immigrant workers in Texas, Southern California and other states that wire money back home to Latin America and elsewhere. It is dominated by two big players—Western Union (First Data Corp.) and Moneygram (Viad Corp.). These companies compete with banks and the U.S. Post Office. Since the 9/11 attack, stricter regulations and tracking of money transfers have been implemented by the U.S. government.
* Pawnshops is a slower-growing but sizeable business. Nearly 12,000 stores generated $4.87 billion in receipts last year. This business is fragmented and concentrated in the Southeast and Southwestern U.S. states. The average loan is less than $100 and it's collateralized by merchandise, usually jewelry. Pawn loans comprise 40% of a pawnshop's revenues, with 60% coming from merchandise sales.
* MarketData Enterprises, Inc.