We all know Wal-Mart (NYSE:WMT) as a one-stop shop for pretty much anything you can think of. However, there is one area Wal-Mart has tried unsuccessfully to get into -- until now.
By the end of October, Wal-Mart will begin offering its own checking account through its partnership with Green Dot (NYSE:GDOT), targeted at the lower-market consumers who make up the company's core demographic.
While I definitely believe Wal-Mart will be successful in this endeavor, most of the big banks don't have too much to worry about. However, Bank of America (NYSE:BAC) has recently increased its efforts to target the "underbanked" U.S. population, and this new move by Wal-Mart could take the wind right out of its sails.
The billion-dollar question here is whether this market is big enough for both companies to be successful, and if it's not, which one will win?
Wal-Mart's long-awaited checking accounts
Through a partnership with Green Dot, which is known for its prepaid MasterCard and Visa cards, Wal-Marts all over the U.S. will offer GoBank branches, creating physical locations for Green Dot's mobile platform.
The accounts have existed in an online-based format since 2013 and are intended to be a low-cost alternative to traditional checking accounts. The account costs $8.95 per month, which can be waived with direct deposits totaling $500 or more. And, there are no overdraft fees to worry about, which can cost upwards of $30 with other banks' checking accounts.
Another reason these accounts may be more appealing to Wal-Mart's core consumers is the fact that there is no credit check needed to open an account. Almost anyone over 18 with a valid ID can open an account.
It looks an awful lot like a recently introduced Bank of America product
The concept of a low-cost checking account with no overdraft fees or minimum account balance isn't exactly new. Earlier this year, Bank of America introduced its Safe Balance account, which has very similar features.
Consumers cannot overdraft their accounts. Rather, if there are not sufficient funds to cover a debit card or Online Bill Pay transaction, it is simply rejected.
There is also a low, predictable $4.95 per month fee, which is actually lower than Wal-Mart's product. However, there is no fee waiver for the account for direct deposits or any other reasons.
The "underbanked" market in the U.S.
According to a report by the Federal Deposit Insurance Corp. (FDIC), more than 20% of U.S. households are underbanked. What this means is that they don't use or rely on traditional banking services like checking or savings accounts, and are forced to use other means of paying for items, such as cash or prepaid debit cards, which can be rather costly and inconvenient to use.
These households have traditionally been unable to get a checking account for a variety of reasons. Maybe their credit score is too low. Maybe they have a bad history of overdrawing previous checking accounts. Or, maybe they can't meet the minimum balance requirements to avoid a hefty monthly fee associated with traditional checking accounts.
Whatever the reasons are that so many households don't currently have a checking account, it is definitely safe to say that there is a market for this type of product.
One study claims global prepaid card transaction volumes will reach $822 billion by 2017 and is currently growing at a 22% annual rate as we move toward a more "cashless" society. More than $420 billion of this amount is expected to be in the U.S. alone.
This is transaction volume that both Wal-Mart and Bank of America would both love to get their hands on.
Who will win?
Even though Bank of America's Safe Balance account undercuts Wal-Mart and Green Dot's monthly fee, there is simply no way for Bank of America to compete with a product that has a physical brick-and-mortar presence in Wal-Mart stores. Wal-Mart's business model is all about convenience and being a one-stop shop, and being able to incorporate banking into this model is a huge competitive advantage.
So while the concept of an inexpensive, accessible checking account certainly has potential, I have to think that Wal-Mart (and Green Dot) simply has more to gain, here.
Matthew Frankel owns shares of Bank of America. The Motley Fool recommends Bank of America, MasterCard, and Visa. The Motley Fool owns shares of Bank of America, MasterCard, and Visa. 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.