Wal-Mart Jumps Into Banking Fray

Wal-Mart ( WMT) jumped into the consumer banking wars with a plan to open 1,000 Wal-Mart MoneyCenters in stores nationwide by the end of 2008.

The idea is to give Wal-Mart customers access to low-cost money services, including check cashing, money orders, bill payment and money transfers.

A key feature of Wal-Mart's push to reach the so-called unbanked -- typically poorer consumers who don't have traditional bank accounts -- is the launch of a national campaign to promote the Wal-Mart MoneyCard. The reloadable prepaid Visa card is being issued through GE's ( GE) Money Bank.

Wal-Mart previously applied for a noncommercial bank charter and was turned down -- some say under pressure from traditional banks. These new centers and the MoneyCard do not require a banking charter, since they use a partnership arrangement with GE Money Bank and the GreenDot network, a Los Angeles-based financial services company.

The MoneyCard, which is branded with the Visa logo, can be loaded in Wal-Mart stores by depositing cash, or by depositing a paycheck or government check. It can also be reloaded at any GreenDot network location. The card can be used as a traditional debit card, to pay for gas at the pump or to pay bills online, or to receive cash without paying a fee at the checkout counter. The cost is a one-time $8.95, but there will be no additional fees, such as overdraft fees, since the credit line is the amount of the customer's deposit. There is no credit check required to get the card.

Jane Thompson, president of Wal-Mart Financial Services, says the new Wal-Mart MoneyCenters and Money Card will capitalize on the trust that both the Wal-Mart and Visa brands have created in consumers' minds. Thompson says the new services will save the average family about $450 a year in fees that otherwise would be paid to check cashing services and higher-cost financial institutions.

To watch Rob Lenihan's video take of this column, click here .

And, noting that the centers will be in high-traffic stores, she points out that the margins on these services exceed the profit on traditional consumer products, thus justifying the capital investment and advertising campaign that the company will launch.

There are currently 225 Wal-Mart MoneyCenters in stores as part of a pilot program, and that number will increase rapidly to more than 1,000 stores by the end of 2008. The new Wal-Mart Money Cards have already been shipped to stores and will be available by the end of June at more than 1,300 stores, double that number by the end of July -- and at almost all stores by the end of the year.

The moves show Wal-Mart has not given up on the lucrative business of providing financial services. Instead, they'll partner with existing financial services providers. In typical Wal-Mart style, they've targeted a market that is largely underserved and overcharged by traditional financial institutions and by high-priced alternatives such as money transfer services and corner check-cashing stores.

Wal-Mart's entrance into the financial-services sector could weigh on the stocks of those companies that already provide banking services to middle-income workers or people in need of short-term consumer debt such as payday loans and cash advances.

For a look at some publicly traded stocks that could feel the effects of Wal-Mart's new venture, check out the Poverty Index, a Stockpickr portfolio that includes such names as Advance America ( AEA), QC Holdings ( QCCO), First Cash Financial ( FCFS), Cash America ( CSH) and EZCorp ( EZPW).

Thompson hinted at other financial services that Wal-Mart may offer as soon as the end of this year. Given the wide margins in consumer banking, the presence of Wal-Mart in this arena spells good news for consumers, and a real concern for the consumer banking industry.

And that's The Savage Truth!

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book, The Savage Number: How Much Money Do You Need? in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald?s and Pennzoil.

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