March 20, 2007

Wal-Mart’s Bank Plan Withdrawal: Opponents Should Be Careful What They Wished For

Filed under: Business Moves,MSM Biz/Other Bias,Taxes & Government — Tom @ 6:02 am

Friday, Wal-Mart dropped its bid to establish a federally insured bank. It’s ridiculous that they had so much trouble getting approved, because as the linked article noted:

Industrial banks have been proliferating in recent years — Target Corp., UnitedHealth Group Inc. and Harley-Davidson Inc. are among the nearly 60 that now exist. Critics say their growth dangerously blurs the line between banking and commerce, concentrating assets in the hands of a few big companies, stifling competition and hurting consumers.

I don’t see where “critics,” which I believe in this case really means “the unbylined author of the Associated Press article,” have produced even the tiniest bit of evidence the current crop of industrial banks has stifled competition in any way, shape, or form. It’s also pretty funny to see an AP writer worrying about “little guys” like Bank of America, Chase, and Citicorp, who are in an industry that itself is getting more and more concentrated (click on the “click to view data” box; the top 10 credit-card companies in 2005 had 92.4% of the business, up from 81.3% in 2004) getting some nontraditional competition.

That said, Wal-Mart’s Plan B isn’t going to make critics feel any better, and I don’t see any “legal” or protest-driven basis on which it can be stopped:

News of Wal-Mart’s decision came a day after details came to light of leases that Wal-Mart recently signed with banks that operate branches in hundreds of its stores, reserving the company’s right to offer an array of future financial services in its stores. According to the lease terms, Wal-Mart can offer future services including mortgages, consumer loans, home equity loans, investment and insurance products and any other type of service or product that the company might develop.

So if Wal-Mart’s customers get used to doing their banking at the stores, the retailer can apply pressure to their bank lessees to offer Wallyworld’s financial products. If those financial products are aggressively competitive (can you say “Always the lowest rates. Always”?), that will drive even more banking business, and more customers, into the stores, turning the whole operation into yet another competitive advantage over other retailers. Oh, it will also siphon business away from traditional bank branches.

Wal-Mart’s critics may end up wishing that the retailer got its way at the FDIC several years from now.

Cross-posted at



  1. Shalom Tom,

    As one of the critics who always puts his byline up high, I have to say that I’ve never had any opposition to Wal-Mart involving itself in what it says it wants to involved in: processing its own credit and debit card transactions.

    But like Rep. Paul Gillmor (R-Ohio), I just don’t trust Wal-Mart to do what it says it will do.

    Competition is a good thing. The problem is that Wal-Mart doesn’t compete; it crushes the competition. And Americans are waking up to what the rest of the Industrial World is telling them: monopsonies are not a good thing.


    Jeff Hess

    Comment by Jeff Hess — March 20, 2007 @ 7:29 am

  2. [...] 0729 Wal-Mart’s Bank Plan Withdrawal: Opponents Should Be Careful What They Wished For [...]

    Pingback by MY COMMENTS… — March 20, 2007 @ 7:32 am

  3. [...] That’s the warning from blogger Tom Blumer. He thinks that Wal-Mart’s decision to withdraw from the banking arena and re-focus it’s attention on making the Walton family wealthier was a bad one. Blumer points to what he calls the company’s Plan B. [...]

    Pingback by The Writing On The Wal » Blog Archive » BE CAREFUL WHAT WE WISH FOR…? — March 20, 2007 @ 7:52 am

  4. #1, I’d be more impressed if there had been opposition to any of the other 60 industrial banks previously approved, including Target. And banking is closer to a monoposony industry than retailing, or hadn’t you noticed that BofA, Chase, and others getting ever-bigger?

    #3, it will indeed be ironic if WM gets into lines of business beyond what it originally intended with its FDIC application.

    Comment by TBlumer — March 20, 2007 @ 8:25 am

  5. It was a bad idea for wal mart to go into banking anyway. The banking/credit card industry does have a monopoly and they control the way retailers do businesses. Look at interchange for example.

    Comment by Triston — March 22, 2007 @ 10:52 am

  6. #5, you have described exactly why WM SHOULD go into banking. From a biz standpoint, if they lower their interchange costs by doing a lot of the merchant processing in-house with their WM Visa or MC, they can pass on the savings. Target has claimed significant savings from what they have done along similar lines. Why shouldn’t WallyWorld get to do the same?

    Comment by TBlumer — March 22, 2007 @ 12:30 pm

  7. Sure, I’d like to see WalMart do its merchant processing in house but wouldn’t Visa or MC still have to charge a some kind of interchange for use of their name? I guess the fee would be lower, which would mean savings for the consumer.

    Comment by Triston — March 26, 2007 @ 9:30 am

  8. A Wal-Mart bank would pay for use of the Visa/MC name and would have Visa/MC charges to pay for interchange, but their part of interchange processing would be (presumably) cheaper. Target has said they have saved money, so why shouldn’t Wal-Mart be able to?

    Comment by TBlumer — March 26, 2007 @ 11:27 am

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