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.
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” .
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
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.” [Oligopoly Watch]