As Americans become more fed up with banks, who are they turning to to protest against Wall Street and outsized fees? The answer surprisingly is Wal-Mart. Customers cash work and government checks, pay bills, wire money overseas or load money on to a prepaid debit card for generally a low fee like $3, as compared to a percentage charged at check cashing companies or higher per transaction fees at banks. Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it.
1. According to the article, what is the price differential for prepaid debit cards at Wal-Mart, as compared to other retailers? If you assume that 650,000 people shift to Wal-Mart from other retailers, what is the savings?
2. What issue(s) was Richard Hunt, president of the Consumer Bankers Association, concerned with as a result of Wal-Mart’s increased activity into financial transactions? Do you agree or disagree with Mr. Hunt? Discuss.
3. According to J.P. Morgan analyst, Tien-tsin Huang, why is Wal-Mart’s financial transaction market growing faster than the normal model for check cashing services? What added strategic advantage of financial transactions at Wal-Mart is seen for the retail giant?
Martin, A. and S. Clifford. (2011). High Bank Fees Give Wal-Mart a Money Aisle. New York Times, Nov. 7 (Retrievable online at http://www.nytimes.com/2011/11/08/business/wal-mart-benefits-from-anger-over-banking-fees.html?pagewanted=1&_r=2&hp)