Bank of Wal-Mart: A Game-Changer?

Critics have long charged that Wal-Mart has driven too many retailers out of business. Now that Wal-Mart is inching closer to the banking market, are banks about to suffer the same fate as their retail brethren?

Ask any business owner that has been knocked out of commission by a local Wal-Mart (Stock Quote: WMT), and chances are they’ll tell you it’s not a matter of “if” but “when” banks are cut down to size – or even eliminated by Wal-Mart’s entry into the banking market.

While there’s no shortage of studies measuring Wal-Mart’s impact on communities, one net result seems clear – competing retailers have to cut prices to survive, and even that might not help save them. A joint study from Iowa State and Mississippi State found that grocery retailers in Mississippi experienced sales declines of up to 20% after Wal-Mart moved into their local markets.

Another study, The Impact of an Urban Walmart Store on Area Businesses from Loyola University’s Center For Urban Research and Learning, concludes that the opening of a Wal-Mart store in Chicago in 2006 fueled the demise of about one-quarter of businesses within a four-mile radius of the store.

Of course, Wal-Mart has gotten a lot of mileage out of its argument that its lower prices are highly beneficial to customers – especially in a tumultuous economy.

How all that will translate into Wal-Mart’s entry into the banking market, which increasingly seems inevitable, is anyone’s guess.

Wal-Mart has already officially rolled out banking operations in Canada and Mexico. But bank lobbyists and community groups have done a good job of keeping the retail giant out of the banking market here in the U.S. – until lately. Earlier this summer, Wal-Mart grabbed an equity stake in a company called Green Dot, which specializes in prepaid and reloadable credit cards already used by Wal-Mart.

Coincidentally or not, Green Dot is looking for a green light from federal regulators to buy Utah-based Bonneville Bank for $15.7 million. That’s not to say Wal-Mart will call the shots if the bank deal goes through – it only has a 1% stake in Green Dot, but it does weave the Wal-Mart banking web ever so more tightly.

Then there’s a new pilot program from Wal-Mart’s Sam’s Club unit, in connection with California-based Superior Financial Group, that offers small business loans to customers. The loans aren’t huge – between $5,000 and $25,000 – but the signal is unmistakable. If Wal-Mart sees an opening in the financial services market, they’ll take it and move it right into their well-trafficked stores. Wal-Mart claims that 15% of its small business members (via Sam’s Club) have been denied a loan in the past year – that’s up from 12% in 2009.

Presumably, Wal-Mart thinks it can fill that gap by making loans to small business customers. The company will sweeten the pot by offering Sam’s Club borrowers a 20% discount on the loan application fee and a .25% cut on Superior Bank’s loan financing rate.

These are just recent moves. Wal-Mart already offers U.S. consumers some obviously bank-like services such as check cashing and those prepaid credit cards – often undercutting bank industry fees in the process.

So, while Wal-Mart is taking a piecemeal approach to banking services, the bigger picture reveals a more aggressive push into the financial services market.

If history is any guide, that’s not welcome news to banks that might, one day soon, have to compete with the beast from Bentonville.

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