Wal-Mart the banker
Wal-Mart is turning its eye to banking in a big way. Having already become the leader in areas from books to jewelry, and from food to clothing, it is focusing more and more on offering banking services to its enormous audience. Needless to say, banks, especially community banks and regional chains, are scared.
Wal-Mart's attempts to open standard banks in their stores have been struck down by local laws in a few cases to date. But, as a Business Week article points out ("Your new banker?", 2/7/05) the company is not giving up. And generally what Wal-Mart wants, it gets, even if it means changing the laws.
The latest move is that the company is now issuing its own version of the Discover credit car, in cooperation with GE Consumer Finance. It has also built alliances with financial companies that are getting locked in the Wal-Mart embrace. For example, MoneyGram International, the #2 forwarder of money by wire (after Western Union) and major Southern regional bank SunTrust, which has started opening satellite offices in the stores with verbos ename "Wal-Mart Money Center by SunTrust" .
The services are geared at the low-to-low-middle-income customers that patronize the stores, offering low prices for such services as check cashing, money orders, and money wiring (often from guest workers in the US to their home countries). This is starting to have its affect not only on commercial banks but also on check cashing companies. On the positive side, it gives a large segment of people in low-income brackets inexpensive financial services in a safe environment - but no-one denies that Wal-Mart provides value.
Current laws prohibit Wal-Mart from mixing retailing and banking in a direct way. According to the Business Week article, "The laws were designed to prevent a big player such as Wal-Mart from denying credit to competitors or shifting losses from its retail operations to an insured bank. But many expect Wal-Mart to overcome these rules."
Sears once tried something similar in the 1980s by buying broker Dean Witter, insurer Allstate, and real-estate broker Colwell Banker, all since spun off. That was disaster. So Wal-Mart is proceeding deliberately, with services that have immediate use to its current base.
But Wal-Mart has been very successful at adding services one by one in other fields. As the article puts it "Complacency in the face of Wal-Mart can be suicidal. Given the giant's long interest in the financial arena, technological savvy, cheap capital, and instant national reach, small and midsize banks, in particular, are right to be paranoid."
7:29:49 PM 
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