Wal-Mart needs a bank.
I’ve mulled over the retail giant’s credit card-related predicament and I keep coming back to the same conclusion: Wal-Mart needs a bank.
Wal-Mart’s in a quandary. While only 15% of its $378 billion of annual sales are made with credit cards, the company saw a decline of 7.5% of credit card use in its stores over the last year. The rough math will tell you that the retailer has potentially lost more than $4 billion of sales because its “customers have maxed out on their credit limits,” said the company’s U.S. president, Eduardo Castro-Wright, during a recent earnings call, as he explained why in-store credit card usage had fallen.
Now consider that Wal-Mart would have saved, by its own estimation, $245 million by receiving permission to start an industrial bank, and you can see why having a bank would help the nation’s largest retailer.
No doubt Wal-Mart knows this. That’s why the company has recently toyed with the idea of starting a low-cost, low-rate credit card. (Why Wal-Mart talked to Herb and Marion Sandler about the idea is beyond me.)
But Wal-Mart is in a pickle. The industrial bank idea fell flat last year. In fact, even though the movement to ease the Bank Holding Company Act is building (who knows to what degree), Wal-Mart engendered such opposition to its industrial bank that the company is going to have difficulty going deeper into banking.
It doesn’t matter. The financial impetus is great enough for Wal-Mart to jump into the banking fray again. It should begin campaigning for a wholesale change to the BHCA. Continuing to add financial services products is key. Wal-Mart launched its Money Card prepaid debit card just in mid 2007, but debit is not going to make up for the declining in-store credit card usage.
The Wal-Mart Financial Services Network has made tremendous inroads in check cashing and bill pay, for example. I realize that it is unlikely Wal-Mart can successfully alter the nation’s banking regulatory framework, particularly with an incoming Obama administration that is expected to embrace tighter financial services regulation. But Wal-Mart is facing a steep financial price for not trying. I say go for it.
MORE INFO
* Click here for news on how Wal-Mart has considered a low-cost credit card.
* A good article detailing Wal-Mart’s debit card offerings.
* Wal-Mart Money Card site here.
Walking on dangerous ice here, JJ, posting a blog that Walmart needs a bank on a site frequented by Bankers. My coworkers and I attend a lot of state and national banking conventions. Last year, to a convention the hot topic was that the world of banking would come to a firey end if Walmart was permitted to form an ILC. The rationale was that this would be one baby step toward every Walmart becoming a bank branch and devastating pressure of banks to chase down the master of discounted goods and services would kill them all. When they pulled their application, shouts of joy rang in most bank offices. I think they tried to set that day up as a national holiday. The not dirt little not-so-secret is that they already control the largest bank in Arkansas. It’s called Arvest and supposedly in that area of the country, most Walmarts have an Arvest branch either inside the store or in the parking lot.
I know one of the busiest guys in the speaking circuit was a guy who used to sit on the board of their charity and now sort of bashes them for driving mom and pops out of business with their price cutting and that they would do the same to banks. When I heard him I actually gained a new respect for Walmart as they are without a doubt one of the most quietly innovative companies out there. More than anything, they are a data mining company that can almost tell you what you are going to buy based on what the first few items you pick up. and then how to get you to buy whatthey want you to. Their technology is amazing. Fascinating stuff.
You should really do some looking into that prepaid debit card they have. Stroke of genious in my view in that what they essentially have is a depsoit account that is saddled with some pretty stiff fees for using it. It is really geared to meet the needs of the unbankable person and was a real thumb of the nose to those who drove them to pull their application. One of the issues that the speaker I heard beefed with them about in that if they are told they can’t have soemthing, they will find another way to get something just like it.
I also agree that an Obama presidency and the trend to more regulation will not make it a high likelihood that they will be successful. The fact that most folks on that end of the spectrum view Walmart in general as the Great Satan does not make it reasonable possibility on my view.
Tim