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Wal-Mart and retail banking services

The retail giant pushes forward in the offering of financial services


February 17, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

The meaning of one-stop shopping continues to redefine itself for retail powerhouse Wal-Mart, as the U.S mainland corporation insists on expanding its financial services. On Jan. 21, the company introduced a no-fee Wal-Mart Discover credit card that offers 1% cash back, and will launch with GE Consumer Finance in March. According to numerous experts, however, credit cards and elementary financial services don’t represent all of Wal-Mart’s ambitions in the industry. Although Wal-Mart has failed in past attempts to purchase a savings bank in Oklahoma and a California industrial loan company, the bets are that similar attempts are yet to come. Many believe the retail giant won’t rest until it wins complete banking rights.

Right now, Wal-Mart has steady alliances with financial service providers, such as MoneyGram International and Sun Trust banks on the U.S. mainland. Banco Popular has branches in two of the nine Wal-Mart stores in Puerto Rico. In early February, MoneyGram International announced a multiyear extension of its agreement with Wal-Mart. Sun Trust expects to expand its 45 in-store branches to 100 by the year 2006. Customers on the U.S. mainland and in Puerto Rico are able to buy money orders, transfer money abroad, and cash checks, all, of course, at the Wal-Mart price. Payroll checks can be cashed for just $3, money transfers to Mexico are $9.46 for all amounts up to $500, money orders sell for 46 cents; these prices are nearly half the price of other competitors. But that isn’t all. The Wal-Mart web page allows customers to pay their bills, order credit reports from all three national agencies at a budget price, order birth certificates and personalized checks, and even brush up on financial education through several links offering savvy financial advice for customers. Many of these services are still in the process of being made available for Puerto Rico customers. The market for services Wal-Mart already offers is worth about $5 billion a year in fees, according to one estimate. This leaves plenty of room for the retailer to continue slashing prices and tighten the price margin for other banking services providers, as it has famously done in the retail world.

However, the effort to gain complete banking status would be uphill due to current prohibitions on combining banking and commerce, designed precisely to prevent giants such as Wal-Mart passing on their retail losses to an insured bank, or to deny credit to competitors. If Wal-Mart succeeded in entering the industry, small and midsize banks would face tough competition. With a steady customer base, always looking for the best bargain, banking services could become a hot sale item. Citibank Puerto Rico Vice President & Regional Manager Carlos Dávila believes if the retailers were successful in formally entering the banking sector, they certainly wouldn’t go unnoticed; however, it would take them several years to really have an effect on the market. "Replicating the success they have had in the retail industry will be much harder in the banking sector. First, they will have to overcome a learning curve of three to four years before creating a significant impact," said Dávila, pointing out that one of their advantages will be the direct access they have to the unbanked population.

For now, Wal-Mart executives emphasize their interest in simply offering convenient banking services for their customers. Frances Ríos, Wal-Mart representative in Puerto Rico, explains that although they cannot comment on their corporate strategies or possible financial service expansions, they will continue focusing on offering their clientele economic and convenient financial products and services. Even if Wal-Mart were able to someday become a community banker, some are skeptical about the profitability of such a venture, citing as an example Sears’ failed attempt in the 1980s to create banking services allegiances with Allstate insurance, Dean Witter brokerage, and Coldwell Banker Real Estate units.

This Caribbean Business article appears courtesy of Casiano Communications.
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