Wal-Mart's March into Financial Services Unsettling to Some

by Mark Friedman  on Monday, May. 12, 2014 12:00 am  

Wal-Mart’s latest expansion into the financial services sector includes offering customers money transfers and the ability to shop for auto insurance.

When Wal-Mart Stores Inc. abandoned its plans to own a bank operation in 2007, it didn’t shelve the idea of offering financial services.

Last month, the Bentonville retailer unveiled its latest entry into the financial services arena by offering customers a cheaper way to transfer money to any of its 4,200 Wal-Mart stores in the United States.

Less than two weeks after making that announcement, Wal-Mart revealed a new partnership with AutoInsurance.com of Fort Lee, New Jersey, to allow customers to compare prices on auto insurance policies and purchase coverage. The program currently is in Arkansas and seven other states, but Wal-Mart hopes to offer the service nationwide in about 12 months.

The financial services are a way to lure customers into Wal-Mart stores, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York.

“What this says to their core constituency is, ‘Look, this is another reason to come see us,’” he said. “And if you can do more for your core customer, that customer is going to come to the store. … I think this is very wise.”

But the offering of financial services has some in the banking industry uneasy.

“I think anytime a large national retailer, like Wal-Mart, creates a payment mechanism that does not go directly through the banks … it’s got to be of some concern to the banks,” said Jack Milligan, editor of Bank Director, a trade publication that covers the banking industry.

According to a Bank Director survey released last week, 58 percent of an audience of 120 bank directors and executives described themselves as being “very concerned” about nonbank competition offering financial products, such as PayPal, Google or Amazon, and not being held to the same regulations as financial institutions.

Still, Wal-Mart maintains it has no plan to revive its dream of operating a bank, said Daniel Eckert, senior vice president of services for Wal-Mart U.S.

“We have found a model that has proven both successful for our customers as well as for our partners,” Eckert told Arkansas Business last week. “We do best when we are a retailer. … We’re about partnering with financial institutions that have a shared alignment to serve the customer and to partner with Wal-Mart to do that.”

In late 2011, Wal-Mart and American Express partnered to start a pilot program that would become Bluebird, a pre-paid card that acts like a checking account. That partnership is thriving, Eckert said.

“Bluebird was shaped by feedback from consumers who said they were not getting the value they expected from traditional checking account and debit services because of increasingly higher fees,” Wal-Mart said in an October 2012 news release that announced the card.



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