Wal-Mart Banks on Big Ambitions

Sure, $400 billion in annual retail revenue is nice -- but deep down inside, Wal-Mart (NYSE: WMT  ) really wants to be a bank.

It's not unheard of for non-banks to be chartered as banks, thrifts, or "industrial loan corporations." General Electric (NYSE: GE  ) is heavily involved in financial services, collecting about $50 billion in annual revenue -- a third of its total -- from such efforts. Even Nordstrom operates its own bank.

Jane Thompson, Wal-Mart's president of financial services, has said that the company has no plans to enter the banking business in the U.S. However, it's already rolled out banking services in other countries. Wal-Mart operates banks in Mexico, where customers can deposit funds at the checkout line, and it just nabbed a banking license in Canada this year.

Here at home, the company issues its own credit card. It also recently opened its 1,000th Money Center, with plans for 500 more. Housed within Wal-Mart stores, these areas offer check-cashing, refills of prepaid debit cards, and other financial services.

The retailer has been trying to secure regulatory approval to enter the U.S. banking business for more than a decade. As you might imagine, the banking establishment isn't in favor of that. KeyCorp (NYSE: KEY  ) , only America's 12th-largest bank branch network, sports 1,019 full-service branches -- about as many locations as Wal-Mart's current count of Money Centers. Fifth Third Bancorp (Nasdaq: FITB  ) operates about 1,300 full-service locations, while even Citibank (NYSE: C  ) has just 1,000 or so retail outlets -- both less than Wal-Mart's target. You get the idea. Traditional banks feel threatened, and with good reason.

Until Wal-Mart can become a bank, it's had to team up with other banks -- a welcome revenue driver for those partners, while the deal lasts. SunTrust (NYSE: STI  ) currently operates more than 80 branches in Wal-Mart stores.

While Wal-Mart's move toward banking isn't welcome news for many financial services companies, it's likely to be good for the retailer's investors. Patrons who enter a store to cash a check may stay to buy. Those using a Wal-Mart credit card may be motivated to shop at the store for cash-back incentives. 

As the chain adds offerings such as grocery departments, vision centers, gas stations, salons, and fast-food restaurants, it's becoming an entire mall all on its own. Innovation keeps companies growing dynamically, and even monstrously large Wal-Mart is proving adept at it. The Bentonville Behemoth might not be a bank yet, but I wouldn't bet against its financial ambitions.

Wal-Mart is growing, but it's not your best shot at a 10-bagger. Learn about even more exciting companies.

Longtime Fool contributor Selena Maranjian owns shares of General Electric and Wal-Mart. Wal-Mart Stores is a Motley Fool Inside Value selection. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.


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  • Report this Comment On July 29, 2010, at 4:43 PM, madmilker wrote:

    Same store sales in America down for the past four quarters...

    Asda sales down for the first time in four years...

    Sell Bonds every March and July...

    and sitting on over $40 billion in debt....

    Sounds more like a government....

    Retail makes NOTHING...

    Governments only make MORE DEBT...

    It's time for less of those two and for America to get back to making stuff...

    America can never get out of this mess by sending dollars to a foreign land in return for so-call cheap stuff and not have dollars left to loan for small business and factories to make stuff.

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