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Coinstar, TIO banking on the cash-preferred

The two companies have joined forces for a pilot program that will offer TIO's billpay services at existing Coinstar locations.

August 13, 2009

Expedited bill-payment processor TIO Networks Corp. recently announced a pilot program with kiosk-industry heavyweight Coinstar Inc. that will place TIO-branded kiosks in up to 50 of Coinstar's current retail locations. The initiative is funded in part by Coinstar's purchase of 230,620 common shares in TIO Networks.

Coinstar spokeswoman Marci Maule says the company is still in the process of determining which locations will be involved in the pilot, and Coinstar plans to evaluate the kiosks' performance in the grocery/supermarket channel against the success TIO has enjoyed in the convenience store segment with brands such as Exxon Mobil and Circle K.

Hamed Shahbazi, founder and chief executive of TIO Networks, hopes Coinstar's clout will translate to success for the pilot.

"Coinstar is clearly a world leader in the business of self-service," he said. "Their growth and financial results are highly indicative of the great job they are doing in managing their business. We are very excited to have an opportunity to partner with such a leader and are obviously proud to have Coinstar as a shareholder."

The program is just the latest news-generating move from Coinstar, which earlier this year acquired the redbox DVD-rental brand and this month announced a 43-percent second-quarter revenue increase over last year. The partnership looks to be early evidence of the company's promise to focus on expanding its self-service offerings in the retail channel.

"We believe we've landed on something pretty exciting," Coinstar CEO Paul Davis said in the company's Aug. 4 Q2 earnings call. "It's clear to us that our core strength is in the area of automated retail. â€¦ The combination of retailer demand, consumer adoption, our core competencies and opportunities for innovation all point to this as being a sustainable platform for future growth."

A shared focus

According to 2008 data from the Center for Financial Services Innovation, 40 million U.S. households, or 106 million individuals, are considered "cash-preferred." These consumers lack traditional relationships with financial institutions or have them in combination with other financial services, such as payday lenders or prepaid debit card providers.

The scarcity of services catering to the cash-preferred has, in part, led to TIO's success in bill-payment processing for companies in the telecom, wireless, cable and utility sectors. The company has enjoyed a steady increase in transaction endpoints, which include retail kiosks, POS systems and an online component — this year, the count has reached more than 18,000.

Though Coinstar has remained quiet about the future of the partnership thus far, it certainly has the potential to pay off in the long term, as the company also relies on business from cash-preferred consumers.

"Coinstar has long seen the value in offering solutions that meet the needs of the cash-preferred customer," Maule said. "Coin-counting is a prime example. With regard to targeting this demographic within the financial services space, we're expecting the total market for self-service walk-up billpay to increase over the next several years."

Coinstar also believes efforts on the part of billers to deflect foot traffic from their offices may contribute to the success of the program.

"It is estimated that 2009 self-service billpay will account for about 20 percent of all walk-up billpay," Maule said. "Similarly, billers are driving a shift from payment in a biller's office to payment in retail locations to increase customer convenience, reduce costs and to increase on-time payments. We believe a steadily growing number of walk-up billpay customers will choose to pay bills through self-service options offered in a variety of convenient retail locations."

Shahbazi says he can't speak for Coinstar regarding long-term goals for the partnership, but that the company likely has designs on billpay as one area of self-service expansion in the future.

"From my perspective, I think they're really trying to learn and evaluate for future consideration," he said. "I think that's the big thing here, they're embarking on â€¦ really learning and understanding if this is a great opportunity for them or not."