Here's Why Banks Are Afraid of Walmart

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Despite Walmart's (NYSE: WMT  ) success with prepaid debit cards through partnerships with Green Dot (NYSE: GDOT  ) and American Express (NYSE: AXP  ) , the retail giant has never quite been able to break into the ranks of the big boys through the launch of its own retail bank. Now, an article on Bloomberg makes this conundrum crystal clear: Banks advising the Federal Reserve have lobbied against making such a plan a reality.

Concerns about regulation
According to meeting minutes of the Federal Advisory Council unveiled through a Freedom of Information Act inquiry, the group of 12 banking representatives expressed concern over Walmart's banking ambitions and endorsed more oversight over the retailer's debit card programs.

It's not hard to understand why banks such as BB&T (NYSE: BBT  ) , PNC Financial (NYSE: PNC  ) , and Discover Financial Services (NYSE: DFS  ) might fear Walmart's entry into full-blown banking. As it turns out, this trepidation is long-lived, and the industry has worked tirelessly over the years to keep the giant retailer out of its neck of the woods.

When Walmart tried to obtain a bank charter in 2006 in order to process its own credit card transactions, groups including banks, labor groups, and conservative politicians sent up a hue and cry. Even the Independent Community Bankers of America came out against it, citing risks to the financial system. In the January, 2008 issue of the fedgazette, the Federal Reserve Bank of Minneapolis noted that fear of Walmart prompted intense lobbying of Congress by banks nervous about the store offering products similar to their own.

Going after the unbanked
One issue that may rankle banks the most is Walmart's access to a population that often does not participate much in traditional banking -- the unbanked and underbanked -- which gives their financial products a kind of captive audience.

Indeed, as Walmart has been foiled time and again regarding its banking aspirations, it has continued to fine-tune its financial services offerings to appeal to its specific market.

The retailer has had much success with the prepaid debit card business, and American Express' newest offering, the Bluebird debit card, is being marketed specifically as a substitute for checking accounts. The attraction is obvious: The card has essentially no fees. Except for PNC, most large banks charge a monthly fee, waivable only by maintaining large balances -- not something that many underbanked individuals are able to do.

Walmart can't be held back forever
The popularity of debit cards isn't lost on banks, which have begun a new drive to increase their use among customers, in an effort to make up for lost revenue brought about by stricter regulations.

Though Walmart should certainly be regulated regarding the products it offers, much as banks are, there seems no reason to limit financial services simply because banks are fearful of the consequences of competing with the retail giant. After all, prepaid debit cards aren't regulated any more tightly for banks than they are for Walmart, so why would retail banking be any different?

As Walmart continues to offer financial products that entice customers, it will only be a matter of time until the arguments against its entry into retail banking lose steam. Of course, banks could blunt the blow by offering their own free banking products. Come to think of it, that may be exactly what they are afraid of.

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  • Report this Comment On May 08, 2013, at 1:34 PM, consAREidiots wrote:

    F walmart.

    We subsize them by paying for their employees health costs and food stamps.

    The richest family in america SHOULD GIVE BACK

  • Report this Comment On May 08, 2013, at 2:23 PM, flowergirl20 wrote:

    It's no surprise that Walmart has figured out ways control their shoppers money. They have control over their employees slave wages,why not have control over all slave wage earners. I never shop there,I can stand the way they operate, in regard to, their employees,and their steam rolling across this country.

  • Report this Comment On May 08, 2013, at 2:30 PM, Xonlinecustomer wrote:

    won't shop online anymore. They don't think my bank is good enough for them. As far as I'm concerned, if the money is there, they should be willing to take it. Also luv the way they squeezed out the little guys, then raised their prices.

  • Report this Comment On May 08, 2013, at 6:22 PM, NotAfraidofyou1 wrote:

    Not because you pay more for your items at other stores ensure their employees a better treatment or pay.It's marketing strategy has work for Walmart something that any businessmen would like to experience on their own, it has it's ups and downs, no doubt, but it is a free market America!

  • Report this Comment On May 08, 2013, at 10:19 PM, Rollingradio wrote:

    The Wakmart near me is called th "ghetto mart" because they are understaffed,no one wears any I.D. that they work there,they actively discriminate against the disabled and mobility impaired ,and there prices over the the last couple of years have in fact killed the MOM/pop stores and then they raised them so you get less for your dollar,between shrinking the portion size and plain greed Walmart has ensured that myself and most people i know would rather give our money to an internet source rather than the "brick and Mortar" Walmart who are ruining eery city/town they build a hideous excess Walmart Super Center and abandon their previous store Locations to the Glut of used retailspace that few people are interested into sinking money into and redesigning to be "their"Headquarters or Erie location- Yet we have homeless Men and Women with children, & Veterans all trying to get the few limited beds at the shelter,we owe these people especially our Veterans so much more than this,yet we have big retail locations that sit empty with huge price tags and people who need a little help jumpstarting their "normal" lives again,why do we not pair the two things, Walmart may look down its nose at the disabled (i just went thru this and am working on getting this too STOP) but what about our Veterans they witnessed and did things that caused them to lose themselves inside their minds,they where following orders and did thngs that they can not rectify with what there parents and teachers taught them growing up- and we in the name of America subjected them to this don't you think they deserve to be brought home and honored for there service rather thsn left as homeless without hope?reintergrate these people bring everyone home, Eminent Domain the older Walmart property's and make them into shelter's and give people a hand up not a hand our-Walmart can write it off and society can benefit!!

    "It is far easier to raise string Children than to Fix

  • Report this Comment On May 08, 2013, at 11:23 PM, SIRIking wrote:

    Extremely sad how America lets industries deny competition specificly Retail Banking business. WalMart entering retail Banking would not harm any corrupt thief piece of garbage nickle and diming banks of any size! Lack of competition is reason why banks all charge for a checking account unless you have tons of money laying around to avoid the fee's.

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