Is Wal-Mart getting ready to do to community banks what they did to community hardware, toy and clothing stores? It appears that way. Wal-Mart currently offers only check-cashing and money order services, but why should the world's most aggressive low-cost provider stop there? They are currently bidding to buy a full-service Utah community bank.
If that succeeds, then how about a bank for its 2.1 million employees with mandatory payroll deposit? Later, those leased bank locations in the over 2,500 U.S. Wal-Mart stores could become Bank of Wal-Mart banks. Overnight, Wal-Mart could become one of the largest retail financial service providers in the US.
Wal-Mart is already a full-fledged bank in Canada and offers credit cards. In the US, Wal-Mart currently partners with SunTrust and other banks to offer services such as money transfers, bill payments, check cashing and pre-paid debit cards. The revenue Wal-Mart earns is not the point, but eventually they will drop the cloak of partnership and unleash the trusted Wal-Mart brand. Last week, they opened their 1,000th “Money Center” (not an actual bank, but their banking services "department") and announced its plans to add 500 more in the near future.
The good news is that consumers might get a better deal from the Bank of Wal-Mart, especially those lower and middle-class households being poorly served by their local community or national banks. Plus, there are no small manufacturers to squeeze. But the mere size of Wal-Mart gives them financial economies of scale that your local bankers cannot provide. Say "goodbye" to local banks sponsoring local non-profits and local higher-paying banking jobs (loan officers, operations managers, presidents, etc. – tellers are already paid Wal-Mart-like salaries). Their ATM network will be bigger than your bank's. Eventually, many branches near Wal-Marts will close.
This outcome is inevitable. Politicians will rant, lobbyists will lobby, but eventually, Wal-Mart Bank will become a reality. As banks, still reeling from the "Great Depression" continue to cut services and charge for previously-free services like checking, they are simply opening the door wider for Wal-Mart.
After founding the bank, what is stopping Wal-Mart Asset Management from selling and managing mutual funds? There is certainly excess fees and poor performance to be rung out of that industry as well.
Is your bank or financial services firm prepared to compete with Wal-Mart? The smart ones are. The others will be road kill under the Wal-Mart steamroller, just like their earlier retail brethren.
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