New Financial Products from
Non-Traditional Sources

In previous issues we have reported non-traditional players getting into the borrowing and lending business. This process seems to have accelerated over the past year as some familiar brand names have begun to cross-sell financial products to their large customer bases.

• Target Corp. (formerly Dayton Hudson Corp) is moving its financial services division aggressively beyond its traditional revolving and installment credit business toward a wider range of financial services. One example is a cobranded test with E-Trade Group of a financial services boutique located in selected SuperTarget stores. Target has 942 stores in 45 states which collectively receive over 1 billion customer visits per year. The company hopes that the sheer volume of traffic in its stores will translate into demand for products not traditionally sold there. Target was attracted by E-Trade's full line of financial services and network of ATM machines. Gerald Storch, head of financial services for Target Corp., told the American Banker that the idea for Target to move into a broader range of financial services stems from its observation that its gift registries—Club Wedd for newlyweds and the Lullaby Club for new parents—"have shown that Target guests trust our products to support them in major life events. By extension, we also want to support our guests as they prepare financially for those life events—whether they are getting married, buying a home, attending college or retiring." The company has also been testing a general purpose Target Visa card, and will make a decision about a full rollout this spring.

• State Farm Insurance Co. is roaring forward with its plans to offer consumer loans. The company has been developing its banking operation since acquiring a thrift charter in November, 1998 and has been training its insurance agents to cross-sell banking products. It recently opened its first loan processing center in a St. Louis suburb which it hopes will be processing 10,000 loans per month by the end of 2001. If the company hits its monthly targets it will be writing $1.2 billion to $3 billion of loans per year.
  By the end of 2000 State Farm had trained 2,000 agents in five states to sell home equity loans, mortgages, auto loans and leases, and savings and checking products. It plans to have 16,000 agents in all 50 states trained by the end of this year. The company is not offering business loans and says it has no plans to do so.

• The AAA auto club has set up an online bank under the charter of Milwaukee's Marshall & Ilsley Corp. Recognizing that its members trust it for travel advice, trip routing and roadside assistance, the club hopes to extend that relationship to financial services. The company expects to book $3 billion to $4 billion of deposits and loans over the next five years. AAA is a federation of 89 independent regional clubs, some of which have already partnered with financial institutions to offer members a range of financial services. The national organization also offers Visa credit cards (originally through Bank One, and now through MBNA), no-fee American Express travelers checks and a shopping service for auto purchases and leases. The new online bank is intended to give affiliate clubs who haven't struck separate deals with financial institutions a way to harness the aggregate buying power of a large organization in securing the best prices and products for members. The online bank will offer savings accounts, money market accounts, IRAs, and a variety of consumer loans, including first and second mortgages. Customers can do business via telephone, mail and the Internet.

• Nordstrom Inc. is expanding its financial services business by teaming with Fiserv Inc. of Brookfield, Wisconsin, a bank data processing company. The company will make a range of financial services available through the Internet, telephone and ATMs installed in its 120 stores in 24 states. The financial products will be offered through Nordstrom FSB of Scottsdale, AZ, which the company acquired in 1991.
  Kevin Knight, the chairman and CEO of Nordstrom FSB, told the American Banker that the company views the venture as a way to provide a wider range of payment options for customers. "The Internet is an important channel overall for Nordstrom.. . Nordstrom.com is the largest shoe store on the Internet, so we know our customers like to use that channel." A link to the Nordstrom home page will let customers access information about their checking accounts and view check images online. The company will offer other deposit products, but says it has no plans currently to expand into consumer loans or insurance.