In 2013, publicly-traded companies serving underbanked consumers outperformed the S&P 500 by approximately six percentage points.
That finding reflects my absolutely unscientific survey of a self-made composition of names. I put together a list of 35
companies in about eight different sectors: rent-to-own, prepaid, buy-here pay-here, high-cost consumer credit, money transmission, tax preparation, payments, and debt collection.
In all, those firms returned an average of 33.1 percent year-to-date. Notably, only one sector returned less twenty-six percent. Since the S&P has returned 27.6 percent year-to-date, this means that almost all exposure to the underbanked would have made someone look pretty darn smart.
That one losing sector was high-cost consumer credit. I believe that this underscores one truth that needs to be widely disseminated: payday lending is a broken business model. High-cost consumer finance companies lose an average of 25.5 percent of their market value over the last year. Top wind-suckers: The Cash Store, DFC Global, EZCorp, and QC Holdings.
The place to be: prepaid debit cards. Consider these results:
- Green Dot: 91 percent
- Metabank: 67 percent
- Bancorp: 56 percent
- Cardtronics: 81 percent
Total System Services could be a candidate for prepaid given that it acquired NetSpend, but the company still has so many other divisions that I decided to put it into the payments category. TSS still gained 52.8 percent year-to-date. On the down side, SpendSmart's shares were worth only about one-fifth of their value from the moment in time when they were first offered. SpendSmart isn't on this list because they were not there for the full year.
- Rent-to-Own: 47 percent
- tax prep (Block and Liberty): 47 percent
- money transmitters: 37 percent
- payments: 28 percent
- debt collection: 26 percent
- buy-here pay-here: 43 percent.
One that I wanted to consider but there out at the last moment was Lending Tree. Lending Tree serves the wrong crowd, but it plays in one of the fields most relevant to financial services for the underbanked. Lead generation is for the most part something that flies under the radar.
Last year, my survey of underbanked companies performed even better.