Wal-Mart Not Banking on Banking Anymore

By George Anderson

Where Wal-Mart goes, controversy follows. Such was the case back in 2005 when the company made an application to get into the banking business with the acquisition of an industrial loan company (ILC) in Utah.

Opponents came from everywhere and the vehemence of the arguments from organized groups and influential members of Congress was such that the Federal Deposit and Insurance Corporation (FDIC) placed not one but two moratoriums on all deposit insurance applications.

Until now, Wal-Mart has hung in there despite its disappointment. That, however, is no longer the case as Jane Thompson, president of Wal-Mart Financial Services, announced on Friday that the company had withdrawn its bid.

“Unlike dozens of prior ILC applications, Wal-Mart’s has been surrounded by manufactured controversy since it was submitted nearly two years ago,” Ms. Thompson said in a press release. “At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested — we simply sought to reduce credit and debit card transaction costs.

“Wal-Mart’s financial services already save customers over $245 million a year so they can live better. Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers. We fully intend to continue to introduce new products and services that champion those who deserve convenient, lower priced financial services.”

While banking is a no-go for Wal-Mart in the U.S., Wal-Mart de Mexico plans to open its first in-store bank in June to offer basic savings and loan services.

Discussion Questions: What is your reaction to Wal-Mart’s decision to drop its bid to run an industrial loan company? What new financial products and services do you believe Jane Thompson may have been alluding to in her statement released on Friday?

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Mark Hunter
Mark Hunter
17 years ago

Let’s not kid ourselves; just because they withdrew their application does not mean they’re giving up on setting up a bank. Wal-Mart still has plenty of resources they can leverage to create more banking-type services. Wal-Mart will continue to create banking services with the resources it has at its disposal and when the political/economic climate is right, they’ll file a new application.

Jim Dakis
Jim Dakis
17 years ago

Every time Wal-Mart has entered a new market with a new store, or, as is the case in our town, announced that they were going to build a “Super Center” where a traditional store already existed, people were outraged at the monopolistic giant and how it was taking over the world. “How would local businesses survive?” etc. etc. Truth be told, there is something to that, and I suppose there is something to that in the banking industry as well, but let’s face it–if the consumer wants to bank at Wal-Mart instead of 1st Bank of Our Town USA, then he or she will. Wal-Mart will enter the banking business eventually; the timing just wasn’t right.

Todd Belveal
Todd Belveal
17 years ago

While there are a range of new regulatory issues to be considered related to Wal-Mart’s ILC application, I agree with their characterization. They are clearly frustrated by a process that has turned political, where banking industry special interests have turned up the pressure in Washington to build this opposition. There may be legitimate regulatory concerns, and but there are also opportunities to improve the quality of banking and financial services offered to lower income consumers. My sense is that Wal-Mart’s impact on financial services would primarily be felt by non-traditional operators such as check cashing and payday loan originators that serve the lower income consumer with perhaps shaky credit. This part of the industry could use some rationalization, and likely these types of banking customers would have seen a fairer deal from Wal-Mart.

Nikki Baird
Nikki Baird
17 years ago

I will first admit that I don’t know a lot about why people are worried about Wal-Mart taking consumer deposits and offering consumer financial services. If our country’s banking regulations are so good, why would we need to worry about that kind of stuff?

But I really would have liked to have seen what Wal-Mart would have done to payment processing fees if they had become a bank. When they say they were going after that cost by trying to get into financial services, I believe them. It’s a huge cost for retailers, and only getting bigger.

Rochelle Newman-Carrasco
Rochelle Newman-Carrasco
17 years ago

With Wal-Mart de Mexico getting into the financial arena, it would be a strong benefit for the Latino community if Wal-Mart US could have cross-border services. While it seems like this won’t happen in the short-term, it’s probable that this will be a long term reality.

Ed Dennis
Ed Dennis
17 years ago

This entire episode was nothing but a trial baloon. If Wal-Mart wants to become a banker, they will. It’s easy enough to just go out and buy a bank. It doesn’t matter who’s name is on the building–its ownership that counts. As much of the banking industry is regulated by the states, look for Wal-Mart to begin with state banks in states with loose regulations.

James Tenser
James Tenser
17 years ago

Not that Wal-Mart isn’t big and scary at times. But in this instance, I suspect the “citizens” most likely to have been harmed by Wal-Mart’s aborted effort to enter banking were the entrenched credit card companies and commercial banks, who saw a threat to their profit margins.

I for one, am a bit disappointed that Wal-Mart missed this chance to apply its clout to a systematic reduction in credit card clearing costs. It might have been interesting to see how that action could have made the industry more competitive and productive for consumers.

David Livingston
David Livingston
17 years ago

I’m disappointed Wal-Mart dropped its bid but they could always revisit the issue in the future. Some of the new financial services I picture Wal-Mart offering is payday loans. This is a growing business and appeals to the Wal-Mart-type shopper. Currently, Wal-Mart offers payroll check cashing and cut rate money orders. They also have those high priced income tax services which cater to the poor and offer instant refunds. There is a big profit in that and I would think Wal-Mart would want a larger cut of this business. I also foresee Wal-Mart offering cut rate wire transfers south of the border where someone can wire money to their family in Mexico and other countries so it can be picked up at the nearest Wal-Mart. I see pre-paid Visa/Mastercards becoming more popular as well and can be reloaded at the nearest Wal-Mart. These services compete directly with Western Union and other companies who cater to those who choose to operate outside of banks in our cash economy.

Mark Lilien
Mark Lilien
17 years ago

Wal-Mart withdrew its banking application because they knew they’d lose the fight. Right now, Wal-Mart rents space to over 300 different financial institutions to operate within its stores. Many of these 300 banks have branches in multiple Wal-Mart locations. Instead of owning a bank, Wal-Mart will continue to rent space to banks, do no work, and enjoy collecting rent. Why bother with the headache when it isn’t necessary?