Wal-Mart Unveils a New Weapon in the War on Dollar Stores: Cheaper Money Transfers

Cheaper money transfers could help Wal-Mart lure customers into its small-box stores and hurt both drug store and dollar store operators.

Apr 30, 2014 at 3:53PM

Wal-Mart Stores (NYSE:WMT) has unveiled what could be its most potent weapon in its war on drugstores and dollar stores: money transfers. The discount giant has teamed up with Ria Financial Services, the retail money transfer arm of electronic payment giant Euronet Worldwide, to launch its new Walmart-2-Walmart Money Transfer Service.

This service will let customers wire up to $900 that can be picked up at any of Wal-Mart's 4,000 stores. Customers will be able to transfer either cash or debit cards such as the Bluebird checking and debit card product that Wal-Mart already offers in conjunction with American Express. Wal-Mart already offers money transfers and money orders from Money Gram International in its stores.

This service is a direct threat to dollar-store operators like Family Dollar and Dollar Tree that do not offer financial services. It could also be a big boost for Wal-Mart's small-box concept, Walmart Express. Walmart Express already offers prescriptions and gas, while dollar stores offer neither. Now it will be offering what could be some of the cheapest non-bank financial services in town.

News reports indicate that Walmart-2-Walmart will be cheaper than the company's competitors. A customer can use Walmart-2-Walmart to transfer between $50 and $900 for just $9.50. Competitors charge between $11 and $76 for the same service, a Wal-Mart press release cited by Slate's Alison Griswold stated.

Financial services as a loss leader
Wal-Mart's plan seems to be to use financial services as a loss leader. Wal-Mart is hoping that people who come in to get or send low-cost money transfers will also shop at Wal-Mart.

This plan probably won't threaten drugstore operators like Walgreen and CVS Caremark or supermarkets such as Kroger, which also offer money transfers and money orders. The potential harm to supermarkets and drug stores is that cheaper transfers will cost them some of their business.

Instead, it seems squarely aimed at the dollar stores. The idea is to offer services that dollar stores don't at a lower price. Walmart-2-Walmart will give people yet another reason to shop at the 270 to 300 small-box locations that the chain plans to open this year.

Will money transfers help Wal-Mart?
Financial services make up only a tiny fraction of Wal-Mart's revenue, around 1% according to Reuters. Yet the company's management team thinks they are important.

The company implemented Walmart-2-Walmart in response to customers' complaints about high-priced wire transfers, senior vice president of services Daniel Eckert said. Eckert's comments indicate that Wal-Mart considers money transfers a potential new revenue stream.

There is some logic to that thinking; a white paper from the United States Postal Service's Office of Inspector General noted that providers of non-bank financial services made around $95 billion in 2013. It should be noted here that that figure includes all non-bank financial services, including check cashing and payday loans. Wal-Mart doesn't offer payday loans.

Increasing its volume of money transfers could help Wal-Mart sell more of some other financial products such as money orders and prepaid debit cards. It might also boost Bluebird, the checking alternative Wal-Mart offers in conjunction with American Express.

Once again, Wal-Mart has demonstrated its ability to identify a new stream of revenue and aggressively tap it. By bringing money transfers in house, Wal-Mart is trying to control costs and offer further deep discounts.

Can It Work in the age of PayPal?
The potential drawback to this service is the level of demand for it. Services like PayPal -- part of eBay (NASDAQ:EBAY) -- and Xoom offer an easy-to-use, lower-cost alternative that can be accessed from any computer without having to go to Wal-Mart.

There are 110 million PayPal customers alone, according to PayPal's own statistics. What should be even more worrying for those in the money-transfer business is that 74% of PayPal's customers are under the age of 55. These statistics seem to indicate that younger people go online and not to the store when they want to transfer money without a bank.

To make matters worse, the middle class customers that Wal-Mart needs to attract are those most likely to use a service like PayPal to transfer money. Around 15% of PayPal users have a graduate degree, and 16% of PayPal users make more than $75,000, according to PayPal's website. Wal-Mart might discover that the demand for old-fashioned wire transfers might not be there. The investment in Walmart-2-Walmart might not pay off.

The launch of Walmart-2-Walmart demonstrates the dilemma that Wal-Mart is in. The retail giant needs to develop new streams of revenue to maintain its position, yet the demand for those services might not exist. Wal-Mart still has the ability to roll out new products and services quickly, but it has not shown if those new products and services can actually make money.

Say goodbye to 'Made-In-China'
For the first time since the early days of this country, we're in a position to dominate the global manufacturing landscape thanks to a single, revolutionary technology: 3D printing. Although this sounds like something out of a science fiction novel, the success of 3D printing is already a foregone conclusion to many manufacturers around the world. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.

Daniel Jennings has a position in eBay. The Motley Fool recommends eBay. The Motley Fool owns shares of eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers