It’s almost that time again, GonzoBankers: back to school. The time where parents nationwide join hands and gleefully shout: “free at last, free at last, thank God almighty we’re free at last.” And no back to school celebration would be complete without a journey to your local Wal-Mart. Ah yes, the mighty machine of Wal-Mart.
Walking through the front door of a Wal-Mart always sends a shiver up my spine. Standing there I gaze, mouth agape, at this store that seems to stretch for miles in all directions. One cannot help but gawk at the endless aisles of groceries, school supplies, clothes, sports equipment, home furnishings, tools and an abundance of inexpensive plastic crap.
To my knowledge there is no other store on the planet where you can enter the store at 7am and by the time you leave check off almost every item on your honey-do list: a haircut, health physical, prescriptions filled, new eye glasses, a stock pile of groceries to last all winter long, outfit your eight-year-old in the latest Mary Kate and Ashley designer fashions, new bike for the boy, four new tires for the Buick, oil and filter change, gas up, buy the latest Git R Done tank top and see everyone in town. The best part is Wal-Mart “always has the lowest prices, always.” About the only thing Wal-Mart doesn’t have is a full-fledged bank. At least not yet.
Wal-Mart customers’ average incomes are below the national average, and a large portion of its customer base is the “unbanked.” A recent study by Marketdata Enterprises defines the “unbanked” as households that have infrequent or non-existent relations with a financial institution. The unbanked utilize alternative financial services such as check cashing outlets, payday loan outlets and money transfer services. The study finds 35 percent of the U.S. population, or 12 million households, is “unbanked.”
Over the years Wal-Mart has increasingly provided alternative financial services to this market. It wasn’t too long ago that Gonzo highlighted 7-Eleven’s initiatives in the “unbanked” market. (see “Curb Store National Bank,” October 15, 2004) One difference – the super retailer charges a lot less for its services:
Not concerning ourselves with 7-Eleven is one thing. Ignoring the fact that the world’s largest retailer has been developing, in customers’ minds, a link between Wal-Mart and performing bank-like services is muy loco. Nevertheless, during recent travels I don’t recall seeing a lot of bank strategies that included plans to address the “unbanked” market.
However, if you want to see a community banker come unglued and start speaking in tongues, just mention Wal-Mart seeking a bank charter. Interpreting this frantic reaction as concern would be an understatement. The financial service industry is terrified.
Wal-Mart has around 3600 stores throughout the United States and employs a staggering 1.6 million. In 2005, 138 million customers walked through a Wal-Mart door every week accounting for 140 million debit, credit and electronic check transaction per month. Wal-Mart, like all retailers, must pay a small fee to big brothers Visa and MasterCard on each transaction. Although the fee may be small, it is not small enough for the boys from Bentonville. Wal-Mart’s solution – remove the middle man and do the processing yourself.
Wal-Mart has attempted to gain full banking status several times:
Strike three! You’re out!
Most companies would give up, but let’s not forget who we are dealing with.
Last week Wal-Mart stepped back into the batter’s box and applied to open a so-called industrial bank. Industrial banks operate under an Industrial Loan Charter (ILC) and are FDIC-regulated depository institutions chartered under the laws of Utah, California, Colorado, Nevada and Minnesota. There are currently 59 industrial loan banks, 31 of which are based in Utah. Not surprisingly, Salt Lake City, Utah, is where Wal-Mart submitted its application.
Anticipating the financial industry panic attack, Wal-Mart quickly proclaimed that the intent of the ILC was to allow Wal-Mart to process its own transactions. Wal-Mart went on to say that the state chartered bank would not open branches or lend money, and would only accept deposits from charities and non profit groups.
Did I mention that the analysis during the approval process is limited to the first three years of business? Ummm… wonder what happens in the fourth year?
Many bankers have no intention of ever seeing that fourth year. The troops are rallying around the lobbying wagons and will do everything possible to prevent a first year. In the words of Camden Fine, president and CEO of the Independent Community Bankers of America, “In future years it is very possible that Wal-Mart would expand upon its role through that ILC, and could start branching, business checking or any number of different commercial bank-like activities. Then that becomes war.”
Comrades, do you think it would be a good idea to start an all out war with Wal-Mart? I think the last war Wal-Mart fought was around 2003, and its opponents were Visa and MasterCard. (Victor: Wal-Mart.)
No one seems to notice that Nordstrom Inc. already operates a consumer bank that takes deposits and makes home loans. Furthermore, I don’t recall seeing a million-banker march in Washington when Target established its ILC.
Over the past three years, the behemoth retailer has steadily built alliances with financial-service providers, such as MoneyGram International and SunTrust Banks. SunTrust is experimenting with 45 in-store bank branches co-branded (can you believe it?) “ Wal-Mart Money Center by SunTrust.” And there are plans to expand this partnership and branding to about 100 additional stores by early 2006.
GonzoBankers, Wal-Mart is no stranger to financial services or owning a bank. Arvest Bank, which has about 200 branches throughout Missouri and Arkansas, not to mention a few in-store Wal-Mart branches, is 96 percent owned by the Walton family. Yes the Walton family. That would be the same Walton as Sam Walton, the founder of Wal-Mart.
No doubt, there is a storm a brewin’. Wal-Mart is an efficiency machine, which is something many bankers struggle with on a daily basis. The retailer has taken technology to the extreme. For example, Bentonville HQ knows when a refrigerator door is open longer than 30 seconds 1000 miles away and the local store manager is immediately notified, preventing the escape of wasted refrigerated air. Even every cash register in a Wal-Mart store is checked and monitored from its centralized operations department
Wal-Mart clearly has its act together, folks. Feel free to picket your local Wal-Mart if that makes you feel better. Just don’t get in my way on Saturdays when that honey-do list is burning a hole in my pocket. If picketing is not for you, make sure your upcoming strategic planning meetings stay focused. Clearly define your market opportunities. Don’t simply preach the customer-centric clichés, set measurable goals and don’t slow down until you hit the target. Challenge your business heads to implement more efficient processes from mortgage loans to the account opening process. Inventory your technology then leverage every component before spending another dime on the latest widget.
If we choose to ignore this threat, Gonzos, we may wake up one morning and see the following logo and slogan everywhere:
“A Trusted Name in Financial Services”
Note: This logo was taken from the Wal-Mart.com website. Are we already too late?
See ya on the front lines.
-tj