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.

The services added revenue to Wal-Mart. Financial services and related products revenue, such as money orders and prepaid cards, total less than 1 percent of its annual U.S. sales, which were $279.4 billion in the fiscal year that ended Jan. 31.

Wal-Mart also has a relationship with Arvest Bank of Fayetteville, which is owned by the heirs of Wal-Mart founder Sam Walton.

Arvest has some locations inside Wal-Mart stores and didn’t necessarily have to bid for the space. Arvest paid Wal-Mart approximately $1 million for rent for its fiscal year that ended Jan. 31, according to Wal-Mart’s most recent proxy filing. Wal-Mart expects to receive about the same amount from Arvest during the current fiscal year.

Money Transfers

Eckert said Wal-Mart began thinking about starting a money transfer service about two years ago after it received complaints from customers who found it confusing and frustrating to transfer money in the United States.

“We felt that there had to be a different solution,” he said.

He said Wal-Mart partnered with Ria Money Transfer, which is a subsidiary of Euronet Worldwide Inc. of Leawood, Kansas, to provide the service, which is called Walmart-2-Walmart.

Wal-Mart’s money transfer service fee is, on average, much cheaper than other money transfer services in industry, Eckert said. He said if someone transfers $900 to another Wal-Mart store, its rate is $9.50, while some competitors charge as much as $75 or more.

Wal-Mart’s transfer service will be competing inside its own stores with MoneyGram International Inc., which has been in Wal-Mart locations for about 12 years. “MoneyGram is still a great partner of ours,” Eckert said. MoneyGram offers more options for consumers such as where the money is delivered and offers transfers to other countries.

Still, MoneyGram lowered its 2014 revenue outlook by 8 to 10 percent because of Wal-Mart’s entry into the money transfer business. Wal-Mart is MoneyGram’s largest partner and represented 26 percent of its 2013 revenue of $1.5 billion.

Wal-Mart’s move into the money transfer business comes as the industry is growing. Global consumer money transfers were an estimated $525.5 billion in 2013, up 4 percent from the previous year, according to an April report from the Aite Group LLC, a research firm in Boston that focuses on the financial industry. The global volume is expected to reach $554 billion this year, and Aite projects that by 2016 the volume will hit $622.4 billion, double the total from 2005.

One of the reasons for the growth in money transfers is the large number of people who don’t have a checking account. Eckert said that about 8 percent of the U.S. population doesn’t have a checking account and another 20 percent are considered “underbanked” and might just have a basic checking account.

 

 

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