By: Bobby Allyn
December 20, 2011
Walmart Money Centers' services attract more services
Rarely does Freddie Williams cash checks at a local liquor store anymore. Because for a fraction of the cost, she can do it at Walmart, joining the growing ranks of customers who are tapping the nation's largest retailer for banking services.
For each check cashed, Williams is saving $7. Local check-cashing stores cannot compete with Walmart's $3 flat fee for checks less than $1,000.
"I don't live far from here, and I shop here, too," said Williams, 49, who does not have a bank account. "It's convenient for me."
Several Walmart locations in Middle Tennessee and around the country are making a concentrated push into certain areas of the banking world, offering check-cashing, money orders, wire transfers and prepaid debit cards from the company's Money Centers, often situated near a store's entrance with walls painted an attention-grabbing canary yellow.
Walmart may be attracting disaffected banking customers who have turned their backs on traditional banks after new fees were introduced in recent months, a boon for community banks, credit unions, and now, Walmart.
Despite some banks retreating from the fees, at least 650,000 customers have joined credit unions in protest, according to the Credit Union National Association's November survey.
While the retail giant heavily invests in Money Centers to lure nontraditional or unhappy bank customers, some experts raise alarms.
Arjan Schütte, a partner at the New York-based Center for Financial Services Innovation, said though Walmart is assisting legions of "underbanked" customers nationwide, the retailer is falling short of helping customers save and improve their credit.
"I don't care if you're poor or rich, you need to be able to save," Schütte said. "The reality is that, compared to other countries, Americans don't save. Walmart is merely addressing a demand for short-term transactions."
Walmart does not have a bank charter and thus does not act as a lender. But some observers say as the Consumer Financial Protection Bureau mulls how to best regulate nonbanks, the Money Center, which outsources nearly all of its services, might be placed under federal scrutiny.
Anne Jaedicke, managing director of the regulatory consulting firm Promontory Financial Group in Washington, D.C., said when the rules regulating payday lenders, private student loan companies and mortgage providers start to take shape, the federal government will have a responsibility to hold Walmart to the same standards as other institutions.
"You can cash checks or wire money without a bank license," Jaedicke said. "But it's only fair that if Walmart offers financial services, that they be regulated like other financial services providers."
Afraid of Walmart?
Not all Money Center customers have a common disdain for traditional banking, however.
Jack Woo, 27, of Nashville, maintains a checking account at Wells-Fargo but comes to Walmart for money orders. The math, he said, speaks for itself: His bank charges $4 per money order. At the Money Center, the price is 60 cents.
He recently started using Walmart to cash checks as well because "my bank doesn't process checks immediately," Woo said. "And I like to have quick access to my money."
The Money Center's popular products, such as prepaid debit cards, make sense, says Kevin Fitzsimmons, managing director of equity research at Sandler O'Neill & Partners LP. But Fitzsimmons doesn't see banks being beaten by the new competition.
"I don't see banks losing from this. There is still a need for checking accounts and a place to use them," he said.
Hank Flury, who heads Nashville-based Cornerstone Credit Union, said the steep discounts being offered by Walmart are the only new aspect of its enhanced financial push.
"A lot of places have sprung up to fill an unmet banking need," Flury said. "But they haven't done much to move those people into a healthy banking relationship with a savings component. For us Walmart hasn't yet become an issue."
The Federal Deposit Insurance Corp. estimates that there are 60 million adults who are "unbanked" or "underbanked."
Among that demographic, Walmart's banking services are without peer for affordability, Schütte said. Furthermore, he does not buy the argument that other banks cannot compete with Walmart.
"There is ample opportunity to compete. The banks are just afraid of Walmart, and none of them are actually competing for the underbanked," he said. "If you're living hand to mouth and need liquidity to manage your financial life, Walmart is the best thing going."