In the early 2000s, banks were engaged in a war with the retail industry, particularly Walmart, to keep retailers from offering bank services. Walmart made many forays, or threatened to make forays, into the realm of banking. After years of butting its head against the wall trying to gain regulatory approval to obtain a banking charter, Walmart surrendered in 2007, when its effort to be granted a federal thrift charter faced massive opposition from the banking industry.
I recall reading comments by the person in charge of Walmart’s banking business model at the time, who conceded that Walmart would forgo a charter, but would still provide as many financial services as it could that do not require a charter. Over the years, Walmart has stealthily been adding services – the most notable being a partnership formed with American Express a couple of years ago to offer prepaid cards and debit card accounts.
Last week Walmart announced a partnership with Green Dot Corp. called GoBank, which will offer a basic checking account. Most accounts will be charged a flat $8.50 per month – with no fees for overdrafts or bounced checks – and will require no minimum balance. In order to be eligible for this account, GoBank has developed its own proprietary system for screening applicants, thus forgoing the established systems currently in use by banks. Walmart has stated that it expects most people drawing Social Security payments or on fixed pensions will qualify.
The Federal Deposit Insurance Corp. reported in a 2011 study that nearly 10 million U.S. households do not use banks for any services. Apparently Walmart sees this gap as a huge opportunity. Walmart needs an opportunity, as it has been losing some ground in the past few years to the upstart dollar stores, such as Family Dollar Stores Inc. and Dollar Tree Inc. In our ever more bifurcated economy, with a stressed and shrinking middle class, Walmart’s marketing appeals effectively to a wide range of customers, many who struggle financially. I recognize that banks also serve consumers of all economic strata and work hard to bring the unbanked into the safety of the depository banking system. However, the above statistic from the FDIC identifies that a gaping need remains. Neither has the tax-exempt credit union industry filled that need, despite its tax exemption based upon servicing this very population … but that is a another topic for another day.
Walmart is the largest retailer in the world. It will be a formidable competitor, whatever financial service it provides. It will be incumbent upon the banks and their trade groups to ensure that Walmart is playing on the same level as banks, regarding disclosures to consumers and other requirements. Banks already have enough tax-advantaged and regulatory-burden-advantaged competitors. The last thing banks need is a Walmart that is special advantaged in any way, particularly at its behemoth size.
– S. Joe DeHaven