US banks are no longer
just competing with each other: retail giant Walmart is launching a
network of remote MoneyCenter kiosks across its vast network of
stores and expects to boost its financial services revenue by
beating the traditional main street banks on price. Charles Davis
reports.
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The presentation that sent shock waves through this
year’s Underbanked Financial Services Forum was small in scope, but
huge in potential. Walmart stores – the largest US retailer –
announced it was set to roll out remote MoneyCenter kiosks in a
small number of stores nationwide.
The kiosk’s shelves will
display the cards customers can receive and load, right on the
spot, before they ever get in the store itself. The idea is
convenience, of course.
But it also achieves a few
other things from Walmart’s perspective. It will eliminate more
costly cash from its retail lanes, while giving the retailer
interchange income on all the purchases made outside of Walmart
stores with the cards. It also frees up employees in the store from
activating and loading prepaid cards – a time-consuming
proposition.
Walmart’s remote
merchandising unit for dispensing prepaid cards is no surprise: its
MoneyCenter mini-branches have been providing check-cashing,
bill-payment and money-order services in 1,000 stores and counting
since 2007.
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By GlobalDataManned by customer service
agents, they are one of the most profitable areas in the Walmart
franchise, Jane Thompson, outgoing president of Walmart’s financial
services unit, said at the forum.
She also had a pointed
reminder to the rest of the industry: Walmart can drive prices down
for the entire underbanked sector.
“Last year we helped
customers in this space save over $400m,” she said. “Our lower
prices are helping others lower prices.”
It is the vivid reminder of
the presence of Walmart in financial services that has banks
quaking, although by now such expansion should be a foregone
conclusion.
Thompson remained coy about
the number and location of the ‘MoneyCenters In A Box’, which she
deemed a pilot programme.
“It’s going to be kind of
like Where’s Waldo – you will have to find them,” she
said.
The steady encroachment of
Walmart into what once were the sole province of banks has
generated its fair share of firepower over the years. James Van
Dyke, president and founder of Javelin Strategy and Research, said
Walmart is going to be a player in financial services despite the
best efforts of banks to stop them.
“They will use the back door
if they have to, but they’ll find a way. The financial relationship
is just too important for them to ignore and the underbanked are a
huge hole just waiting for something like the kiosk-prepaid
combination.”
Walmart has shrewdly wrapped
all of its financial services offerings with a campaign for cheaper
banking services. It has battled with card networks and banks over
interchange fees and stands to be one of the biggest beneficiaries
of the pending regulatory caps on debit interchange from the
Dodd-Frank Act.
It scrapped an application to
charter an industrial bank in 2007 amid industry opposition. Today
Walmart is one of the top sellers of prepaid cards, through a
partnership with General Electric’s GE Money and Green Dot
Corp.
“I don’t see why they need a
bank charter anymore. They can establish customer relationships
through the prepaid cards, and provide a gateway to all of the
financial services they already are offering from that device,” Van
Dyke said and added that the value of the kiosks for the retailer
comes in their combination with prepaid cards.
“When you link traditional
MoneyCenter services like bill payment and money transfers with a
reloadable prepaid debit card, then you can start to do a lot of
things that look just like banking. Consumers can deposit cash and
add cash to their cards, with much more convenient
hours.”
Banks have struggled to find
a business model that would allow them to service the unbanked and
still generate profit. Walmart’s answer is to put the bank on a
prepaid card.
Bankers have long felt that
Walmart’s financial services activities should be regulated. But
the real threat here may be to companies like Western Union and
MoneyGram, whose business models depend on high-volume money
transfers.
The other great advantage of
the prepaid strategy is that it allows Walmart to effortlessly
usher in financial services as it moves across the globe. The
retailer has more than 9005 outlets under 60 different banners in
15 countries – and prepaid cards play a prominent role in most of
those locations.
In the past year, Walmart
begun offering savings accounts and credit cards through its
three-year-old Banco Walmart de Mexico Adelante franchise south of
the border, where it aims to have 160 branches in place by the end
of 2010. Those branches already accept deposits and originate auto
loans and mortgages, among other things. It also opened Walmart
Canada Bank, which offers credit cards and has hinted at mortgage
lending in the future.
In the UK, it offers loans
and insurance through its subsidiary Asda, where rival Tesco, the
country’s biggest supermarket chain, already operates a healthy,
wholly-owned banking franchise.
And in the US, while its
moves are far more subtle, the kiosks prove its commitment to
financial services.
The company’s Sam’s Club
subsidiary recently announced a pilot partnership with Superior
Financial Group, a nonbank lender, to offer online loans of up to
$25,000 to small-business owners at a 7.5% interest rate over 10
years.
Walmart also has taken an
equity stake in Green Dot, a marketer of prepaid cards that, in
turn, gets 63% of its revenues from the retailer.
“Look at all they are doing, and you could conclude they
are very much in the banking business already,” Van Dyke
said.
