Sears Is Back, Targeting the Underbanked
Decades after 'socks and stocks,' retailer offers check cashing and bill pay
American Banker | Thursday, May 6, 2010
By Sara Lepro
Nearly 30 years after the department store chain set out to become "the largest financial services
entity," as its then-chairman put it, Sears is once again challenging banks.
This time around, the nation's fourth-largest retailer is setting more modest goals for itself in financial
services and targeting a more downscale clientele: underbanked consumers.
Since late last year, Sears Holding Corp. has been testing financial centers, where customers can go to
cash checks, wire money and pay bills, in eight Kmart stores in the Chicago area.
Sears is not offering checking or savings accounts, and it hasn't sought a banking charter since an
unsuccessful 2002 application to open an industrial loan company. But according to Susan Ehrlich, the
head of Sears' financial services unit, its target market includes a group she calls the "disenfranchised,"
who are fed up with banks' overdraft fees and other hassles.
This group — primarily young consumers who have, or previously had, low-balance checking and savings
accounts — has been growing rapidly, she said.
"It's just not economic for traditional banks to service those customers anymore because of the way the
rules and the policies have changed," Ehrlich said. "The customer need hasn't changed. But the services
that are available and the price at which the services are available really don't make them an attractive
alternative for these people."
The experiment faces hurdles. For one thing, Kmart's rival low-cost retailer Wal-Mart Stores Inc. already
offers the same services in more than 1,000 of its stores across the country.
Also, in this niche, "getting the product mix right does require effort," said Philip Philliou, a payments
industry consultant and managing director with Philliou Selwanes Partners LLC in New York. "Marketing
to this group requires effort."
But Ehrlich said Kmart stores already attract consumers who are shut out of the financial mainstream.
"This cash-based, underserved customer is shopping our stores today," she said. "If they need shampoo
and toilet paper, there's an aisle for them. When they need money services, we're going to have that
location in the store available to solve those problems for that consumer as well."
In trying to foster a banklike relationship with consumers, both Kmart and Wal-Mart "are tapping into
the fact that the business model of the traditional bank simply doesn't work," Philliou said.
These consumers tend to have little or poor credit history, and that "makes them somewhat undesirable
for many banks," he said.
At the same time, these individuals "are scared of minimum balance requirements, high checking fees,
and they have a higher comfort level with the retailer," he said.
Though Sears' last stab at providing a fuller array of financial services had at best mixed results, analysts
say its new approach makes sense given the company's current clientele. And its offering of alternative
banking products comes as the primary audience for them — underbanked consumers — is widely
believed to be growing.
Sears' history in financial services stretches back to the 1930s, when its predecessor company, Sears,
Roebuck and Co., started Allstate Insurance Co. In 1953, Sears launched a credit card for use in its
But the big push began in 1981, when Sears acquired the retail investment brokerage Dean Witter
Reynolds and the real estate franchise Coldwell Banker. Four years later, Discover was launched as a
general-purpose credit card within the Dean Witter unit.
But Sears shareholders complained it was getting distracted from its core business. "The company was
rightly criticized for a time for losing focus on their retail business," said Scott Strumello, an associate
with Auriemma Consulting Group Inc.
In 1993 Sears spun off Dean Witter, Discover & Co. Morgan Stanley eventually acquired Dean Witter and
later spun off what is now Discover Financial Services. Today Allstate is independent, Coldwell Banker is
part of Realogy Corp. and what was once Sears Mortgage is, after a series of mergers, part of JPMorgan
Chase & Co.
After merging with Kmart Holding Corp. in 2005, Sears' network of stores grew by nearly a third (it has
3,900 stores today), and it gained exposure to a broader spectrum of consumers. Sears' flagship
department stores sell big-ticket goods like appliances, tools and electronics; Kmart is a classic discount
store, with a focus on everyday items.
"They have a different retail operation today than they did 20 years ago," Strumello said.
Both Sears and Kmart offer store-branded credit cards, prepaid gift cards and layaway programs. But
testing financial centers in Kmart stores shows a bigger commitment to financial services, akin to Wal-
It's also much different from the route Sears took with Dean Witter. "They are more fee-based
businesses as opposed to businesses that earn money on managing funds," Strumello said. "The more
volume you can push, the more money you make."
This approach makes the most sense when dealing with underbanked consumers, Strumello said. "The
notion of the underbanked model [is] you do the one transaction … and boom, you're done," he said.
"There's not necessarily the ongoing relationship."
However, if a company can offer services at competitive prices, chances are those customers will return
often, he said.
A clerk who answered the phone in one of the Chicago Kmart stores Wednesday said the fee for check
cashing is $3. Next-day bill pay is $1.50, while same-day bill pay is $2.
These fees are competitive with what Wal-Mart charges in its MoneyCenter locations, where check
cashing also costs $3. The standard bill-payment fee is 88 cents, for delivery within three business days;
next-day bill pay is $1.88. Wal-Mart also offers an express bill payment through MoneyGram
International that costs $4.50, and which sends a biller notification of a payment within 10 minutes.
Ehrlich is no stranger to marketing financial products. She joined Sears in 2006 from Washington Mutual
Inc., where she headed marketing strategy and planning of the company's $20 billion credit card
portfolio. Before that she managed new product development at Providian Financial Corp. before it was
bought by Wamu. She was also a vice president in the cards unit at Citigroup Inc.'s Citibank, overseeing
the high-risk portfolio.
As Ehrlich sees it, aside from the "disenfranchised" the underbanked category includes immigrant
consumers who have no credit history, or a very thin credit file; and consumers with damaged credit
who are trying to restore their creditworthiness.
Winning the loyalty of the younger underbanked consumers may pay off for Sears' core business in the
long run. "These are going to be the future high spenders," said Edmund Tribue, a senior vice president
at MasterCard Advisors.