The New Frontier for Wal-Mart: Banking

The company founded by Sam Walton and still headquartered in an obscure part of Arkansas has found its newest mountain to climb in retail banking. In the last twenty years, Wal-Mart has made millions for investors while saving consumers thousands of dollars annually by leveraging its size and technology to bring prices to an all-time low.

It is hard to imagine that when Sam Walton started his first five and dime store in the northwestern corner of Arkansas almost fifty years ago that he ever thought Wal-Mart would be what it is today. In fact, it is hard to quantify what Wal-Mart is. It is more than just a huge discount superstore like its brethren, Target and Kmart. So what is it? Simply put, the only way to categorize it is to call it what it is, Wal-Mart.

The one indisputable fact is that when Wal-Mart has made a decision to entrench itself in has a success rate that is unmatched. In 1988, when Wal-Mart decided to enter the supermarket industry, analyst did not see the logic behind one stop shopping. Today Wal-Mart commands a sixteen percent market share for the entire industry. In much the same way when Wal-Mart decided to do toys in a major way, ToysRUs found itself playing meet the price. And unfortunately no one can compare with Wal-Mart on that front. As it stands, almost thirty percent of all toys bought in this country are done at Wal-Mart.

Almost three years ago, the thought of Wal-Mart entering the financial services industry first was talked about. At the time they had a co branded credit card with Discover. But when the Bentonville, AR based company decided to move into banking the world took notice. While Wal-Mart derives its income from a broad spectrum of economic classes, their bread and butter consumer has an annual income of between forty and eighty thousand dollars. These consumers shop at Wal-Mart as a matter of convenience. Outside of that are the people who benefit most from Wal-Mart's quest to offer goods as inexpensively as they can get them. It is this same group of people that make up the nexus for Wal-Mart's move into retail banking. It is believed that over twenty-seven million people do not have a checking account. For whatever reason, Wal-Mart has decided to solve the problem by forging ahead with its push into retail banking.

Wal-Mart's goal is to open up almost one thousand MoneyCenters around the country. Inside these MoneyCenters, consumers will be able to receive check cashing, money orders, bill payment, and money transfers. The purpose of these MoneyCenters is to be an asset and bring tremendous value to the consumers.

When it was announced that Wal-Mart had applied for an industrial loan charter, consumer benefits was the one thing not used as a reason why Wal-Mart should not be granted such a charter. What Wal-Mart wanted to do was set up a quasi-bank in Utah that would handle its credit card processing and other fee-based transactions Wal-Mart currently outsources to a third party. The U.S. Treasury defines an industrial bank as a limited services financial institution distinguished from commercial banks because industrial banks do not offer deposit (checking and savings) accounts or any other type of financial services to consumers. Legislation was drawn to prohibit Wal-Mart from receiving the charter by assessing that no entity should receive a charter if less than eighty-five percent of their income was derived from financial services. It is believed that Wal-Mart pays almost seven hundred and fifty million dollars annually in processing fees. If Wal-Mart is successful the benefits to consumers are all about price.

As opposed to deposit accounts, Wal-Mart has chosen to use a reloadable Visa card, call the Wal-Mart MoneyCard. It is an FDIC insured debit card Wal-Mart has partnered with GE Money and Green Dot to launch. The card will have a one time fee of $8.95 and a monthly fee of $4.95. Each of these is a far cry from the fees experienced at a traditional, commercial bank. Additionally, Wal-Mart is positioned with their ability to work without some of the financial regulations including identification for immigrant or undocumented workers. Also, with their hours reaching beyond that of normal banks, Wal-Mart will be able to handle some of the very tasks people struggle to accomplish within the confines of a typical business day and structure.

As is always the case with Wal-Mart, both investors and consumers win when Wal-Mart is successful. Community banks and check-cashing stores will languish in the face of the tyranny that is the Wal-Mart Effect. But what an analyst cannot say is that when Wal-Mart opens its doors the people do not show up. And they will do the same for the Wal-Mart MoneyCenters as well. Wal-Mart is reaching to become more than a consumer goods store and move into consumer services. They are a force in whatever they do. And pretty soon, retail banking will be their's as well.