Last week, the American Banker featured a story by Maria Aspan (paid subscription required) that looked at Wal-Mart's business of providing consumer financial services to its customers, two years after it finally gave up its quest to get the FDIC to move forward (as the law required it to do) on its application for approval of insurance of accounts for an industrial bank charter and withdrew the application. According to Aspan and expert observers she interviewed for the story, Wal-Mart has not only adapted well to a world without bank charters, it may have "dodged a bullet" by not owning an industrial bank at a time when the Obama administration and Democrats in Congress want to do away with that charter.
"...Wal-Mart's coming to the realization, 'You may not get the charter, but that doesn't prevent you from getting the consistency reputation in financial services,' " [Louisiana State University professor Joseph] Mason said. As for competition from traditional banks, he said, "Right now, I don't see that push-back, and of course the crisis is aging, so I don't think we're going to see anything hinder Wal-Mart from amassing a financial superstore even if they don't do it with a charter."
Wal-Mart appears to have done a "work-around" the lack of a charter through partnerships with "General Electric's GE Money Store which issues its branded credit cards and prepaid cards, and FiServ Inc.'s CheckFreePay unit, which provides its walk-in bill service."Even consumer advocate groups admit that Wal-Mart's prepaid cards have been a hit with the audience that matters most to the retail giant: its customers.
"There are things offered by Wal-Mart that banks are not able to provide, or it is going into places that banks are not willing to," said Linda Sherry, the director of national priorities for Consumer Action. But "the Wal-Mart brand is perhaps more trusted by individuals and people who shop at Wal-Mart than by consumer advocates and union types."
It's difficult to believe that consumers would ignore the warnings of those who know better than "the sheeple" what's in their best interests. What's next: Jesse Jackson stages a press conference for the next trumped up Duke Lacrosse Team "scandal" and nobody shows up?
It's interesting that Wal-Mart, by not being in the banking business, is side-stepping the public relations backlash that is tainting other bankers who had nothing to do with the causes of the current crisis, such as community banks that are dropping like lawyers on a dove hunt with Dick Cheney. Instead, Wal-Mart is using the avenue open to it (not ideal, but workable) to cement its relationship as a low-cost provider of financial services to working class Americans. The Beast of Bentonville refuses to be tamed.
To be perfectly fair to the community bankers and other segments of the conventional banking business that howled so loudly about Wal-Mart's real intentions in seeking to obtain an industrial bank charter, I think they were correct. Wal-Mart wanted to bring to the banking business the same Wal-Mart business model that it brought to the selling of cheaply-made pants for Americans with wide butts: give the people what they want at prices below the competition. They would have been a formidable force in traditional consumer banking. As some "lone wolf" critics claimed two years ago, that would have been a good thing for banking business, which tends to get fat and lazy when competition is restricted.
Of course, Wal-Mart still might become a formidable force, although not in through a conventional route.
Speaking of conventional routes, no mention is made in the article of Wal-Mart's decision to pursue a conventional retail banking business outside the United States, where the separation of banking and commerce is not, shall we say, a concept that causes governments to seize up like a Ford F-150 with a leak in the oil pan. As we noted a couple of years ago, Wal-Mart's announcement that it was entering the consumer banking business in Mexico "lends credence to those of its critics who warned during the ILC debate that opening the door even a crack to Wal-Mart would have been a big mistake."