Wal-Mart to Offer New Debit Card, More MoneyCenters
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MARGARET WARNER: Earlier this year, in the face of fierce opposition, Wal-Mart abandoned plans to create its own bank. But late yesterday, the retailing giant announced it will rapidly expand into the financial services business anyway. Wal-Mart will create money centers in nearly one-third of its 3,300 stores by the end of 2008. At those 1,000 locations, customers will be able to cash checks, pay bills and complete money orders. There are 225 such centers currently.
The retailer will also issue its own prepaid Visa debit card, which can be used at its stores, other retailers, or ATM machines. Customers may deposit their entire paycheck onto the card. The card will cost about nine dollars and charge a roughly five-dollar monthly fee.
For more now, we turn to Michael Barbaro of the New York Times. And, Michael, welcome.
MICHAEL BARBARO, New York Times: Thanks for having me, Margaret.
MARGARET WARNER: Let’s start out with who this is aimed at. Wal-Mart says it’s aimed at the un-banked and underserved. How big a customer base is there? And who are they?
MICHAEL BARBARO: This program reveals a lot about who shops at Wal-Mart. When Wal-Mart talks about the un-banked, it’s talking about 70 million Americans who don’t have a relationship with a bank, don’t have a bank account of any kind, savings or checking. About half of those shop at Wal-Mart.
And these are people who, for a variety of reasons, don’t trust banks, have been disqualified from having a bank account. They may be illegal immigrants. They may not believe that putting their money in a bank is a wise idea. And these are people that the banking industry has been trying to get a hold of for a very long time, and they happen to be some of Wal-Mart’s best shoppers. So Wal-Mart sees a huge opportunity to take people who are in its stores and offer them banking services.
Customers can cash checks
MARGARET WARNER: So let's, say, go to this money center from a customer's point of view. What will the customer be able to get there? Why is it a good deal for the customer, if it is?
MICHAEL BARBARO: Well, when a customer comes to one of these money centers at Wal-Mart, they'll walk up to it. It will probably be a kiosk. And what they'll be able to do is cash their check for the week, or every other week. They'll be able to transfer money. They'll be able to also order this pre-paid debit card.
Now, the advantage to the customer of this, Wal-Mart says, is they're going to get these products at pretty significant discounts. And let's just give you an example. Right now, Wal-Mart offers check cashing for people who don't have a bank account to take their check every week, and they charge a flat fee of three dollars. And the average person who does this has a weekly paycheck of about $350.
If this person were to go to an average check cashing center, in a city or in a rural area, these centers often charge 10 percent of a $350 check, which is something like $35, versus the three-dollar fee at Wal-Mart. And what Wal-Mart has always been so good at -- the reason why it's the world's largest retailer -- is that it reduces the cost of everything, from a pair of shoes to, in this case, check cashing.
So there are significant savings. For Wal-Mart, there's significant profit, because they have more than 130 million people in their stores every week. They assume that many of these people don't have bank accounts and will start using their banking services.
MARGARET WARNER: Now, let's go on to from Wal-Mart's perspective. If you go in, and you take your weekly paycheck, and you deposit it essentially on your debit card, then Wal-Mart is not only going to make the fees, right, but they'll get the use of that money without paying you any interest?
MICHAEL BARBARO: Well, when you go use that pre-paid debit card, the transaction fee -- the people who will probably make the most money will be the company that issues the card. In this case, it will be their partner, General Electric.
Now, what Wal-Mart has talked about in the future is helping people who use these cards eventually save money. Right now, you simply bring in your paycheck, put money on this card. It's not really doing a lot for you on that card; it's not going to have any interest. You can't invest it in a 401(k). You really can't do anything with it. And the next step, Wal-Mart says, is to come up with a way to take the money on the card and make it actually do something for the people who put it on there.
Banking industry's concerns
MARGARET WARNER: Because right now, in effect, you've spent the money the minute you buy that card?
MICHAEL BARBARO: You have to spend it. It's going to sit on that card or it's not going to be spent at all.
MARGARET WARNER: Who is this competition for? Who should really be worried about this the most?
MICHAEL BARBARO: Well, everyone in banking is worried about it, I can assure you. When you look at what Wal-Mart's doing, putting money centers in 1,000 stores, it's essentially creating the same banking footprint as Citigroup, the largest financial services company in the country, the same size as what they have, in terms of ATMs and banks. So everybody who does any kind of banking or check cashing service is worried about this.
But the companies that probably should be most immediately worried about it are small, rural, independent banks. And these are the people who long ago opposed Wal-Mart's entry into financial services, because, as everybody who shops at Wal-Mart knows, they're not in cities. They're in small, rural communities.
And that's where there may be one bank in town or one check cashing office, and Wal-Mart's going to offer a better deal. We know that; they have a much bigger scale. They're going to get better prices. And those guys are going to get squeezed.
MARGARET WARNER: But you're saying, over the long term, regular financial services companies, traditional ones, also have to be worried that Wal-Mart is essentially taking a back door into banking.
MICHAEL BARBARO: They are worried, they should be worried, but they have big brand names that mean something to people. And they also offer a wide variety of services that Wal-Mart may never be able to get into.
Remember, Wal-Mart doesn't have a bank, long ago tried to get a bank -- with so much opposition, it decided it wasn't worth the fight. And so it's going to rely on other companies, other partners who do have a bank license to do a lot of the most complicated financial services for them.
So a Citigroup, a Wachovia, a Bank of America may not be threatened in the near term. Over time, as Wal-Mart brings more and more partners into its store and offers mortgages and home equity loans -- as we think they will -- then other companies may be getting even more nervous.
Public interest argument
MARGARET WARNER: Michael, is there an argument against Wal-Mart that opponents made that was about more than competition, that was a public interest argument?
MICHAEL BARBARO: They did. The people who oppose Wal-Mart's entry into financial services say that Wal-Mart has not always been a good corporate citizen and argue that banking is a sensitive area. You take people's savings, you take people's livelihood, and they don't think those people who oppose it for competitive reasons and lots of other ulterior motives don't say that Wal-Mart should be entrusted with this power.
But what really upsets the banking community about what Wal-Mart has just announced is that, several months ago, when Wal-Mart was seeking to open a bank, it said it was never going to use that bank to enter financial services.
MARGARET WARNER: You mean in a retail sense?
MICHAEL BARBARO: In their store. They were never going to begin offering a lot of the services that they've actually now just announced. So what's upset people actually the most is that Wal-Mart's doing things it said it probably wasn't going to do, so people feel misled. Wal-Mart says, "Look, we can save people a lot of money, and we're going to do it."
MARGARET WARNER: And just to explain, because you and I both referred to their attempt to open a bank before. This was a bank that would simply process credit card transactions and debit card transaction, right?
MICHAEL BARBARO: That's right. Wal-Mart wanted to open a bank in the state of Utah that would process credit and debit cards, and basically save them money that they now pay somebody else. And everybody feared that this was going to be a back door into much broader financial services. And now that Wal-Mart has announced much broader financial services, people think that they were misleading the public.
MARGARET WARNER: But briefly, in bottom line here, Wal-Mart doesn't have to get authority from anyone. No regulators, Congress, nobody can stop this?
MICHAEL BARBARO: No, this is Wal-Mart's bank without having a bank.
MARGARET WARNER: Michael Barbaro of the New York Times, thank you so much.
MICHAEL BARBARO: Thanks for having me.