Should Walmart Be Able to Open a Bank?
Bankers have long been concerned that Walmart, as it has done in retailing, might disrupt the financial services business if the government allows the company to open its own bank. Minutes from a Dec. 19 meeting of the Federal Advisory Council, obtained under the Freedom of Information Act by Bloomberg News, shows the concern has not waned.
It was suggested by attendees of the meeting that Walmart might seek to find some type of "back door" to enter the financial services business without facing the same regulations of traditional firms.
Concern seems to be related to efforts such as Bluebird, a joint program with American Express. Bluebird allows unbanked Walmart customers to gain access to a prepaid debit card that doesn’t require a minimum balance or impose fees for in-network transactions. Bluebird holders who use out-of-network ATMs are charged for transactions. Consumers can do direct deposits from their place of employment or use a smartphone to photograph checks. Holders of the card can also do automatic bill payments and person-to-person transfers.
The company dismissed the notion that somehow its financial services programs are regulated differently than banks.
"The financial services products offered at Walmart stores are properly regulated," Deisha Barnett, a spokesperson for the chain, said in an e-mail to Bloomberg. "In many cases, the regulated entity is the financial services partner."
Walmart, as well as Home Depot and Target, found its attempt to acquire an industrial loan company in Utah was met with fierce opposition from the bankers. Two years after first submitting its bid in 2005, Walmart withdrew.
Discussion Questions
Do you think consumers are generally unhappy with banking institutions and want an alternative? How do you think a bank run by a retail company would differ from traditional financial institutions if bound by the same regulations?
Wrong question.
The right question is, “Are Walmart’s key target markets generally unhappy with banking institutions?”
Um … let’s see … what percentage of them had their houses foreclosed on and/or have mortgages that are underwater? How many of them are paying—what seem to them to be—huge service fees for checking accounts, ATM usage, etc.? Finally, how many of them believe the banks have their backs versus supporting the svelte spinal column of the “One Percent”?
Oh … yeah … those guys love traditional banks!
I have no idea how much better Walmart could run a bank, but from the point of view of most of its customers, it couldn’t do much worse.
“Traditional Financial Institutions”? Today’s banks are far from traditional financial institutions. The loosening and continuing lack of regulation is bizarre. Fiduciary responsibility no longer exists.
That being said, banks need competition and whatever entities can give them that the better. I think there is a place for a consumer oriented bank, with conservative values, operating under the current regulations, or even tighter ones. If there wasn’t a place for it, the banking lobby would not fight so hard to prevent it.
There is a second question that must be answered…should retailers go outside their business skill set and operate banks. That question must be carefully—very carefully—answered by each retailer.
My goodness can you think of any type of organization more greedy, self-centered and customer/citizen un-friendly than banks, airlines and the most pathetic of all—government? Health care is running a close and sad fourth—but I digress.
If there is any “banking magic,” it won’t be experienced just because a bank is run by a retail company. As the AT&T ad says, “It’s not that complicated.” Put the people first, provide excellent and varied services at reasonable cost and for goodness sakes, just be nice. There are some banks (mostly of the local variety) and credit unions that are taking a good shot at developing a true win-win relationship with customers, but not many.
A retail store that sets up a banking operation won’t treat banking customers any different than it treats its current customers. What you get is what you’ll get.
Banks need to get back to traditional banking and customer service. They lost their way when they tried to create new trendy products including CDOs to keep up with the Dot com era of growth and excitement on Wall Street. We know how that turned out. In my opinion, it is okay for banks to be boring as long as they are customer focused, reliable, stable and pay a good dividend.
Not a fan of retailers getting into the banking business. It concerns me that too much control will be in one retailer’s hands which reminds me of “Too big to fail.”
What Big Banks can learn from retailers:
I have banked with my local bank for the last 15 years and the experience has been amazing.
Newtown Savings Bank has already learned a lot from retailers. Bigger Banks should take notes.
Consumers generally have negative opinions about banks. If a traditional retailer can open a bank that fills a niche, and couples it with good customer service, it might succeed. That said, it’s a hassle to switch banks, and consumers may put up with a lot of dissatisfaction before making the decision to switch.
Bank @ Walmart. There should be no issue with it. Walmart also knows their shoppers better than any bank ever will, so they know how to best help them save more. Walmart is about service, and with good service comes growth and success.
Let it roll and see ya at Walmart!
I find that getting the best service from a bank is to work with very small ones, know the top people and then own part of the bank. That’s not going to happen with Walmart. Walmart does very well with the unbanked. And believe me, most banks are happy that Walmart is filling that need.
Banks are highly regulated and margins are low. Retailers would have a difficult learning curve, similar to the way Target is trying to figure out groceries. They will make a lot of mistakes along the way.
I agree with all those who say that bank customers can find much to be unhappy about. Perhaps those will turn out to be sweet spots for Walmart. Importantly, the question will be if those sweet spots offer profitability to Walmart. I don’t think this initiative is a strategy for building more business, but rather deepening the relationships with existing customers.
The banking and retail industry will be monitoring Walmart’s activities, the good and the bad. I think Ryan’s point about Walmart’s target market is a critical factor in Walmart’s potential success. It’s not about the banking population but the banking population who shop Walmart.
Hmmmm…traditional banks destroyed the U.S. economy, then asked us to bail them out, then refused to extend credit to, well, pretty much anyone. Nothing to complain about there, right?
If Walmart can come up with a retail banking approach that appeals to its core customer, the country will applaud. Go for it.
Banks are horrible. Fat cats who rip off consumers and keep buying bigger boats and bigger second and third homes. Totally indefensible and, to many with any common sense, just plain old immoral. As I recall, years ago, Schweggmann’s ran a bank in New Orleans. You could do your banking right at the bank in the store. Nobody got hurt there; people liked it. Walmart would bring fresh air to the fetid banking industry. I’m all for it.
This is a ‘free market’ society, right? So what if Walmart wants to open a bank, what’s the problem? I would expect Walmart to do to banking what they did to grocery: re-think it and do it better, simpler and less costly to consumers. Why wouldn’t we all want to see that? Other banks should welcome the competition as it will only make them better.
I would also expect Walmart Bank to do to other banks what they did to other retailers: weed out the weak or, better put, the less consumer-friendly. Win win IMO.
Why is everyone so concerned? For gosh sakes we have created banks for years and forced them to lend money to people who were totally unqualified to borrow, we have encouraged rating companies and appraisers and rating services to falsify information so loans could be made, rated and sold. We have even set up quasi federal banks to buy and bundle these bogus loans and sell them all over the world as AAA rated credit instruments. What more could Walmart possibly do to our banking system?
The fact is that there are no real regulations on the banking industry that can’t be subverted by governmental interference. A bank run by a retail company would be no different than a bank run by a banking company, other than it might cut a profit layer out of the consumer supply chain. And as I stated before, there are no regulations, because those who are supposed to be enforcing the banking laws and regulations choose what and when they will enforce anything. Like the immigration laws, rules and regulations—nothing exists unless enforced!
For those who ask “why not?” my response is “why?” As in why does WM want to do this…how do they expect to make money?
We all know how banks work: they take in deposits, they then loan the deposits out with interest, keeping some of the interest for profit/expenses and paying the rest back to the depositors (I admit the last step seems now but a quaint memory!).
But what I see here is only the paraphernalia (debit cards, bill payments) that surrounds such core activities, and all of it seemingly bearing that most wonderful of four-letter words: FREE! Something is missing here.
In analyzing this issue, let’s not repeat the classic marketer’s mistake of assuming the target customers are people like us.
According to the 2011 FDIC National Survey of Unbanked and Underbanked Households, “More than one in four households (28.3 percent) are either unbanked or underbanked.”
“Unbanked” means the 8.2% of American households that have no deposit accounts whatsoever. “Underbanked” means the 20% of households who must also rely on Alternative Financial Services, such as payday loan or check-cashing services.
I suspect that Walmart knows its base includes a great many of these households, who would benefit from fairer and more available basic banking services. “Save money. Live better” takes on added meaning in this context.
Sure, Walmart wants to sidestep the transaction fees presently charged by credit card companies. But they also want to make it easier for customers to deposit their pay and spend it in their stores. I don’t know if I’m entirely comfortable with the power that would represent, but who else is stepping up to offer an alternative?
It’s none of the government’s business “who” is running this or that type of business. Setting rules makes some sense—if not politically motivated. But from there, whoever follows the rules should be allowed to compete. So it’s going to be destructive. Thank God! Like A&P slaughtered grossly inefficient mom & pops and their distributors, and Walmart (and others) have continued the decimation of the inefficient. Too bad. Flushing the inefficient is the doorway to greater freedom and prosperity. But the losers always run to the government to protect their own parochial interests.
40 Years ago it was part of my job to scan the Federal Register every day, for regulatory action that might affect our business (clinical lab, at the time.) The one thing I learned is that a HUGE share of regulatory action is nothing more than one commercial interest trying to screw other commercial interests. No wonder that bloated government has become a cesspool of crony capitalism. The wonder is that citizens keep voting to ultimately screw themselves, all the while believing that somehow they will win the government lottery.
As I recall, our present-day economic turmoil was largely caused by the banks we now have serving us. A new financial dilemma in some future ruinous growth plan of theirs is only a matter of time. The fact that so many retail giants are considering creating their own banks is evidence that these institutions are not dealing fairly.
What I see as interesting in this discussion is how the consumer will align themselves with the government and the banks in support of this continuing mess. Just like raising taxes on the wealthy has caused prices to go up so that the average person can pay the rich man’s share, it is the consumer that is forced to pay the bank fees in the form of higher priced products and services.
Matthew Henry was correct in his observation, “None are so blind as he that will not see.” In the face of high prices, ridiculous commerce laws and regulations refusal to allow change that protects the consumer begs the question, is it possible that the government now owns the banks, business and the consumer?