For nearly a decade, Wal-Mart (WMT +0.73%) has been trying to set up its own bank. Last week, it came close to succeeding -- at least in one respect.
You can bank on Wal-Mart
From a consumer's perspective, a bank has three primary purposes. First, it's a place that can lend you money. Second, it's a place to keep the money you've already got. And third, it's a place that can help you to send your money someplace else.
It's this third function of banking that Wal-Mart addressed last week, when it announced its new Walmart-2-Walmart money transfer program. Basically, what the program amounts to is a system that permits customers at one Wal-Mart to transfer funds to a recipient who can pick them up at another Wal-Mart, with some caveats:
- No more than $900 may be transferred in a single transaction.
- Transfers may only be made domestically, among Wal-Mart's 4,000-odd U.S. stores.
- Fees are $4.50 for transfers up to $50 in value, or $9.50 for amounts from $50 to $900.
What it means to Wal-Mart
Wal-Mart's move makes sense for the company for two reasons. First, and most obviously, the fees charged on money transfers create a new revenue stream for the company. Incidentally, Wal-Mart already offers services like these through partner MoneyGram International (MGI +0.00%). But Wal-Mart is now underpricing its partner, charging $0.25 less than MoneyGram charges for transfers up to $50, and about $2 less than MoneyGram charges on $200 transfers. These cheaper prices increase the chances that customers will visit Wal-Mart to make their money transfers.
Second, and corollary to the first, Walmart-2-Walmart gives customers two new reasons to visit Wal-Mart stores -- first, to send money, and second, to pick money up. Each trip offers Wal-Mart the chance to catch a customer's attention and potentially sell that person some stuff -- which is, after all, Wal-Mart's raison d'etre.
The move, which Wal-Mart is making with cooperation from new partner Ria Financial Services, owner of the Ria Money Transfer business and a sub-subsidiary of midcap financial firm Euronet Worldwide (EEFT 3.21%), also aligns nicely with the company's other financial ventures -- all in the "help you to send your money someplace else" vein. In addition to Walmart-2-Walmart, the company offers its customers in-house bill-paying, money-ordering, check-cashing, prepaid card-funding, and income tax-filing services.
What it means to everyone else
If Wal-Mart's new venture offers incremental growth opportunities for Wal-Mart itself, and a nice business boost for Euronet, it's less propitious for other companies in the money transferring business. Chief among the losers last week is incumbent partner MoneyGram.
Up till now, MoneyGram has been Wal-Mart's "preferred provider for money transfer services conducted at Walmart." Technically, it still is -- at least for international money transfers and domestic transfers in excess of $900. But Wal-Mart's move to bring smaller, domestic transfers in-house is still bad news for MoneyGram. Responding to the news, MoneyGram pointed out that it's been trying to diversify its business away from Wal Mart-reliance in recent years -- but the going is slow. In its most recent 10-K filing, MoneyGram noted that Wal-Mart is its largest "agent," feeding it customers for its money transfer services. While revenues from Wal-Mart have shrunk from 29% of MoneyGram's business in 2011, to 28% in 2012, as of 2013, MoneyGram still relied on Wal-Mart for 27% of its business.
To a lesser extent, all players in the money-transfer market stand to suffer from Wal-Mart's horning in on their business. But MoneyGram is clearly the biggest loser. There's a reason its stock dropped 18% Thursday, and you can chalk that all up "2-Walmart."
