Wal-Mart certainly is a retail giant, offering products from apparel and appliances to electronics and groceries, just to name a few. With approximately $315.7 billion in sales in 2006 and over 6000 stores worldwide, it’s hard to think of an area that Wal-Mart hasn’t influenced or a product or service they don’t offer.
For a long while Wal-Mart has been looking to expand its horizons into the financial services sector. It is well on its way, offering services such as check cashing, money orders, money transferring, bill payment, and Wal-Mart credit cards. Although it claims to have no interest to operate as a bank, Wal-Mart is awaiting approval from the FDIC to operate an industrial loan company (ILC) in order to cut transaction costs associated with credit and debit card purchases. To Wal-Mart’s dismay, last summer the FDIC had declared a moratorium for all ILC applications that was to last for several months.
Wal-Mart’s application to the FDIC angered many banks around the country. The opposition stems from the worry that the retail giant will push local banks out of business. Wal-Mart charges pennies for their financial services compared to other banks who, in turn, are finding it hard to compete on a price basis. Also under criticism are the motives behind their increased financial interests. Many believe Wal-Mart’s services, especially check cashing, are ways that the store can prompt customers with cash on hand to make purchases inside the store. Wal-Mart refutes this opinion, claiming that only 14% of those who cash checks at their stores end up making a purchase at the same time.
However, do banks need to worry? Commercial banks offer products that cater to people in need of investing or saving money. Wal-Mart, on the other hand, serves what the banking industry calls the “underbanked,” or those who don’t use commercial banks. So are they really taking business away from banks when they serve separate markets? Only time will tell what kind of impact this proposed expansion will have on the banking industry.