Earlier this week, convenience store king 7-Eleven (NYSE:SE) announced it would be purchasing the ATMs in its stores from American Express (NYSE:AXP) in a bid to expand its financial service offerings. Investors no doubt were pleased that this would add two cents to earnings this year. Shares are up around 18% this year in a market that has been sideways to down.
The ATM acquisition immediately brings 7-Eleven a nice dose of what should be high-margin fee revenue. I hate these fees, but sometimes it's worth $2 to avoid schlepping to your bank. Many of my friends and loved ones don't think twice about these fees and get their dough from the nearest machine. This bodes well for 7-Eleven and its 5,483 new ATMs.
While the company has not even hinted at expanding further into the banking business, I can't help but think it might happen down the road. Crazy, you say? Hear me out, dear reader. To understand why I think this way requires familiarity with 7-Eleven's largest shareowners, retailer Ito Yokado Group and 7-Eleven Japan (Ito Yokado owns most of 7-Eleven Japan).
If you walk through the streets of Tokyo, you will see the large banks such as Citigroup (NYSE:C), but you'll also come across hundreds of 7-Elevens, each equipped with an IYBank ATM (as you may have guessed, IY stands for Ito Yokado). Japan boasts nearly twice as many 7-Elevens as the States. When you add IYBank's Internet banking to its 9,000 ATMs scattered across Japan, you have a bank that can reach just about everybody in the country.
According to the information provided by Ito Yokado on its website, it took only three years and fewer than 170 employees for IYBank to turn a profit. I'm at a loss to think of another way to roll out a bank with such a large presence so quickly and that achieves profitability so soon.
But back stateside, it's a big jump from ATM operator to actual bank. A strong argument can be made that simply operating ATMs brings in fee income without the hassle of managing accounts, deposits, and loans. However, I'm not aware of a bank that would have more than 5,000 ATMs to give folks fee-free ATM transactions and sell them some gas, a Slurpee, and a bag of chips in one visit. The more I think about it, the more I like the idea.
Fool contributor Nathan Parmelee owns shares in 7-Eleven but none of the other companies mentioned.
