Banks vs. Walmart: get ready for another round

As Dodd-Frank ban expires, expect retailers to ramp up financial services.

Banks fear that Walmart could do to them what it has done to the nation’s grocers and hard goods merchants.

Yet banks didn’t shudder when Sears owned an array of financial services such as Discover, Allstate, Coldwell Banker and Dean Witter Reynolds about 25 years ago. Nor could they stop the advent of retail-branded credit cards—though interchange fees are very much a bone of contention today.

The Lempert Report expects banks will escalate their fight to keep Walmart off their turf—especially now that the Dodd-Frank financial reform law no longer bars retailers and other nonfinancial firms from offering financial services. “If Congress simply does nothing and regulators apply the law fairly, Walmart could begin offering affordable, credit, savings accounts and CDs to consumers,” reports The Wall Street Journal.

With more than 245 million customers (worldwide), there’s great potential for people to bank where they already buy their food, clothing and hard goods. The nation’s largest retailer has long offered bill pay, money orders, check cashing, money transfers, tax preparation, the reloadable Bluebird pre-paid card and other financial conveniences—and it has been eyeing bigger banking prizes for years.

It’s not the only one. Costco writes loans for homes, boats and recreational vehicles, and insures cars, homes and health.  Home Depot writes home improvement loans up to $40,000, and Walmart is experimenting with sales of life insurance policies in Georgia and South Carolina, reports McClatchy Newspapers.

A Walmart spokesperson told McClatchy the chain no longer wants to become a bank. The Lempert Report interprets this statement as acknowledgment the chain has figured out ways to offer lucrative services without a charter. Opponents of the chain call this practice “shadow banking” that might escape the same regulatory oversight as banks.

A report issued by the Federal Deposit Insurance Corporation (FDIC) last September says 8.2% of U.S. households (about 10 million households and 17 million adults) are unbanked, and 20.1% of U.S. households (about 24 million households and 51 million adults) are underbanked.  

These are prime audiences for retail financial services offers, since many might not qualify for bank loans. For example, reports Bloomberg Businessweek, Progress Financial “is run by a former Walmart executive, a Walmart director sits on the lender’s board, and the founding Walton family’s venture capital firm is its largest shareholder.” It is, the account notes, one of several firms targeting an estimated 23 million U.S. Hispanics “unable to get traditional loans because they have limited credit histories.”