Part four of a five piece series on emerging threats to banks from non-financial companies. To read parts one through three, click on “For Banks, the Sky IS Falling,” “PayPal is Eating Your Bank’s Lunch” and “The Bank of Facebook.”
At the risk of crashing through an open door, did you know that the retail juggernaut Wal-Mart Stores Inc. launched Bluebird in partnership with American Express late in 2012 so users can direct deposit their paychecks, make bill payments, withdraw cash from ATMs and write checks? Yes, customers also have access to mobile banking, which includes features like remote deposit capture and person-to-person (P2P) payments. So does this position Wal-Mart as the next SIFI (*no disrespect to CIT following their announced acquisition of OneWest in a $3.4Bn stock & cash deal earlier this week)?
Cue Robin Thicke
According to Wal-Mart, 95% of Americans live within 15 miles of one of its stores. So I think its fair to say that Wal-Mart continues to blur lines between banking and shopping as it added yet another financial service to its stores across the country. Indeed, the retailer announced this spring that customers can transfer money to and from any of its 4,000 stores in the U.S. and Puerto Rico. As this article in Forbes highlighted, low income workers who don’t have traditional bank accounts are turning to prepaid cards and alternatives to checking accounts. Banks like JPMorgan Chase and Wells Fargo are trying to fill that gap with prepaid and reload able cards — something Wal-Mart has been offering for years.
Where Is That Achilles Heel?
Unlike online competitors to a bank, Wal-Mart enjoys huge brand recognition and an established customer base that feels comfortable walking into their local “branch.” In fact, banks that already operate inside Walmarts reap among the highest fees from customers of any banks in the nation, according to a WSJ analysis. But the very demographic the retail company serves — one that expects and demands rock-bottom pricing — may not favor a “B of W.”
Indeed, banking at Wal-Mart is a lot more expensive than shopping there. As noted by in the WSJ, most U.S. banks earn the bulk of income through lending. Among the 6,766 banks in the Journal’s examination, “just 15 had fee income higher than loan income — including the five top banks operating at Wal-Mart.” Would the company really want to race to the bottom in terms of pricing its financial products (ones that would not be federally insured) and compete with its own tenants?
If At First You Don’t Succeed…
It is worth noting that Wal-Mart has tried to get into banking since the late 1990s. It was thwarted in attempts to buy a savings-and-loan in Oklahoma and a bank in California — and later dropped a bid for its own banking charter in 2007. While I’m not suggesting the new logo depicted above is anything more than a simple rendering by yours truly, it wouldn’t surprise me if the company explored even more creative ways to compete with financial institutions in the future.
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