Diversification of All Kinds is Route to Success


If there’s a key word in the PDL/ check cashing industry today, it’s “diversify.”

Companies are broadening their horizons in every possible way — approach and accessibility, in products and services and geographically.

Why diversify? It’s simply a matter of reducing risk. There’s nothing new about that: it simply makes sense not to rely on the economy or legal situation in one area or a single product or service for all your profits. But in this era of financial stress and regulatory threats, it makes more sense than ever to put your eggs in a number of different baskets.

Geographic diversity is a real favorite among the big boys in the industry. Two that have been expanding around the world are Dollar Financial and EZcorp.

Jeff Weiss, chairman and CEO of Dollar Financial, put it succinctly when commenting on the company’s first quarter of 2011, which ended Sept. 30, 2010:  “A key component of our long-term strategy is to continue to diversify our business geographically.”

Through both bricks-and-mortar and via the Internet, Dollar Financial has established a presence in no less than five countries: the United States, Canada, the United Kingdom, the Republic of Ireland and Poland.

Is the strategy working? Well, consolidated total revenue grew to a record $174.2 million for the quarter, an increase of $28.7 million or 19.7 percent, compared to the prior year period. On a constant currency basis, total consolidated revenue increased by $28.4 million or 19.5 percent.

Expanding Within Nations

Dollar Financial is not sitting still in those countries, either. Its focus in Poland has been to develop and invest in the technology and management infrastructure necessary for expansion within the country, as the company’s Polish business previously operated primarily in the northern provinces of the country. In mid-2010, it expanded its Polish lending business into two new geographic provinces.

Also during the quarter, Dollar Financial opened 14 new stores in the United Kingdom. The company has stated it sees the U.K. as having significantly fewer retail financial services stores in relation to the under-banked population when compared to the United States and Canada, which should mean ample opportunity to continue to expand its store network there for a number of years to come.

Bolstering its belief that there is significant unfulfilled demand for its products and services is the fact that Dollar’s new U.K. stores typically achieve break-even EBITDA in their first year of operation.

In Canada, the company is piloting an Internet lending product in the provinces of Ontario and Alberta, which it expects to eventually expand into additional territories. In November, Dollar Financial’s wholly owned Canadian subsidiary, National Money Mart, acquired nine franchise stores in the province of Alberta. It now has 412 company-owned outlets and 53 franchise stores in the country.

Technological Inroads

Nor is Dollar Financial content with being in just five nations. In August 2010, it entered into an agreement to acquire Folkia Group AS, a leading internet lending business based in Stockholm, Sweden. The acquisition had not been finalized at press time.

The company, which was founded in 2006, currently originates loans through both Internet and SMS text cell phone technology in four countries: Sweden, Finland, Denmark and Estonia.

The acquisition is perhaps most important for its cell phone-based lending platform, which was designed to handle the specific requirements for expansion within Northern Europe and Scandinavia while also providing the added benefit of a portable credit and finance license for future expansion into additional countries in the European Union, according to the company.

Dollar Financial also expanded its Internet media and local area marketing programs in its Merchant Cash Express business in the United Kingdom (see sidebar).

Is Dollar’s overseas acquisition binge over? Its seems doubtful, as Weiss added, “Furthermore, we have a very active pipeline of global acquisition candidates that we are currently evaluating and pursuing, coupled with approximately $200 million of available funds to invest in these opportunities.”

EZCorp’s Unique Path

Dollar isn’t the only company looking beyond the United States’ borders.

You may think of EZCorp as operating consumer loan stores in the United States under the EZMoney brand. You may or may not be aware that it also has a Canadian presence under the CashMax brand.

EZCorp put its toe in the Canadian payday loan waters in 2009, starting off with two locations. It quickly added a half-dozen more CashMax stores before the end of that year. By the end of 2010 or early 2011, it should have about 20 stores.

Outside North America, EZCorp has taken a different route to diversification. Rather than open its own stores, it has invested in established overseas companies.

In the U.K., it holds some 29 percent of the outstanding shares of Albemarle & Bond Holdings.

EZCorp also owns approximately 30 percent of the outstanding ordinary shares of Cash Converters Cash Converters International, which franchises and operates locations in Australia, the U.K., Spain, South Africa, France and other countries.

Whether EZCorp will continue to invest in overseas companies and expand its own CashMax stores in Canada is unknown. With the retirement of CEO Joe Rotunda on Nov. 1, 2001, and the management changes already occurring under new President/CEO Paul E. Rothamel, the company’s future direction remains to be seen.

Are these instances of international diversification irrelevant to smaller players? Not at all. While most PDLs may not be interested in expanding or investing in other countries, following the examples of Dollar and EZCorp on a different level, such as expanding into different towns, counties or states, may offer similar benefits.

Threats Overseas, Too

It should be notedthat overseas operations are no panacea for regulatory concerns. Companies with investments in other countries must keep a sharp an eye on developments in those governments, just as they do in the United States.

The U.K., for instance, has long been without any interest rate caps, but that may change — and soon.

But things swiftly changed in the past couple of months. In early November, a Member of Parliament from the Labour Co-operative Party, who had won a seat in the last election, introduced a bill aimedat credit costs using a legislative maneuver called the Ten Minute Rule.

MP Stella Creasy’s bill would give the government power to intervene to limit the total cost of credit; to increase funding for debt advice through a levy on credit and store cards; to give local authorities powers to limit the number of payday lenders setting up shop in their area; and to widen access to credit unions by linking them to the post office.

Although Ten Minute Rule bills often fail because they are not supported by the government, this may be one of the few that succeeds.

Prior to the bill’s introduction, rate caps had been endorsed by such prominent figures as the Archbishop of Canterbury. The Church of England launched its own campaign, Matter of Life and Debt, to offer guidelines for church members and the wider public about “avoiding the worst traps of the present situation.” The campaigning association Debt on our Doorstep, led by Church Action on Poverty, has been pressing for tighter regulation of the lending market, with a further investigation of payday lending and a cap on charges.

What’s more, Creasy, 33, supported her bill  with what she calls the End Legal Loan Sharking campaign, which includes a Web site, endlegalloansharks.org.uk, with a logo of a threatening shark/lender. Major newspapers jumped on the bandwagon with headlines and stories that gleefully used the “legal loan sharking” description.

Under these circumstances, it’s perhaps not surprising that within days of the first reading of Creasy’s bill, the government agreed to broaden the scope of its review of consumer finance and raised the prospect of regulating legal money-lending in Britain for the first time since usury laws were repealed in the 19th century. Supporters of further regulations mounted a campaign to inundate MPs with mail before the consultation on the review ended on Dec. 10.

Other Types of Diversification

Even the companies that are investing overseas are looking to other types of diversification. What’s perhaps most obvious is the combination of payday and small installment loans and pawnbroking. In the United States, many companies have both payday loan (and, sometimes, small installment loan) operations and pawnshops. EZCorp has its EZPawn and Value Pawn stores in the United States.

In Mexico, EZCorp fields Empeño Fácil and Empeñe Su Oro pawnshops. As previously mentioned, companies it has invested in internationally offer both payday and other small loans and pawning.

Pawn/payday loan combinations aren’t limited to the huge, publicly held companies. Privately held dual companies seem to be increasing in the United States. Some, such as high-profile Minnesota-based Pawn America/Payday America, have been in both industries for some time, while many payday lenders are adding pawning in response increased regulation in their original field.

Today, with the boom in gold buying, many payday lenders and check cashers have jumped into that field. Some are developing the business on their own, while others are partnering with companies such as Austin, Texas-based EZ Gold Exchange, which sets up gold-buying operations in partnership with retailers on either a turn-key or an la carte basis.

Equally important are moves to attract different demographic groups. Many PDLs and check cashers have long served various ethnic groups. But some are giving these groups a new emphasis, while others are turning to them for the first time.

It’s clear that the days when PDLs and check cashers could offer one service and one service only are gone — and those that continue to do so will soon be gone, too.

Posted in Winter 2010.