This week everyone is talking about GoBank, WalMart’s latest foray into banking. As reported in The New York Times, Wal-Mart us finally offering a checking account to virtually anyone over 18 with a valid ID and a pulse.
Wal-Mart has partnered with Green Dot, which is better known for its prepaid cards, to offer checking accounts to anyone who wants to bank at GoBank. For direct deposits of less than $500 per month there would be a $9.95 service fee, otherwise there are no fees for overdrafts and no minimum account balance required. GoBank will go live at the end of October.
This move is the latest effort by Wal-Mart to bring financial services to its customer base. Their objective is to meet the financial needs of the 10 million households who currently don’t use bank accounts, and increase its sales at the same times. According to The New York Times report, this move is designed to help win back customers that Wal-Mart is losing to T.J. Maxx, Dollar Tree, and Target. Wal-Mart started offering pre-paid cash cards some time ago, only to be mimicked by Target and 7-Eleven. However, this is their first move to offer a checking account, although it is not being regulated or insured by the FDIC. And Wal-Mart has already started taking orders for paper checks and they are expected to develop a mobile transaction model to compete with Apple Pay.
So should banks and credit unions worry that Wal-Mart has finally gone too far? Have they crossed a line to become a more aggressive competitor?
Here’s one observation excerpted from a story in American Banker:
The decision they face is whether to fight Wal-Mart and other disruptors, or try to partner with them, said Falk Rieker, head of the global industry business unit for banking at SAP, a financial technology consulting firm. He pointed to their recently announced partnership with Apple as an example of banks opting to join potential disruptors rather than try to beat them.
"If you're a bank, you can say Wal-Mart is competitor and if we help them, we're just making them stronger," Rieker said. "Or you can say that they're not going away and I should try to get something out of it."
The truth is that banks and credit unions have been fighting the barbarians at the gates for years. New online payment models, mobile payment models, prepaid cards, and other financial services offered by non-banks have been proliferating for some time. The thing that makes Wal-Mart a threat is the same thing that makes bankers worry about Apple Pay – market share.
Wal-Mart has 4,253 stores. By way of comparison Bank of America has 5,377 branches. But Wal-Mart serves more than 100 million customers each week. Wal-Mart has the consumer foot traffic and the convenience factor.
As long as Wal-Mart targets the underbanked, they may not pose much of a threat. Some consumers will like the convenience of free Wal-Mart checking, until they need a car loan or a mortgage. However, what if the Wal-Mart model attracts new bank customers.
Consider students who are just starting to bank for the first time. If they start with a Wal-Mart account in high school or when they are off to college, it will be that much harder to win them back to conventional banking. And what about the Millennials? They are actively looking for banking alternatives, especially after the recent recession, the revelation of wrongdoing by Wall Street bankers, and the emergence of the Occupy movement. If Wal-Mart were to offer a viable banking alternative, some customers may choose Wal-Mart simply because it is not a bank.
So what are banks doing to combat Wal-Mart. Some are adopting new banking products designed to appeal to the underbanked and the Millennials. We are continually tracking new products for our Product Builder database, which holds more than 15 years of bank product innovations. This week we reported that Citigroup has joined BofA, Key Bank, and a handful of banks offering paperless checking – digital-only accounts available free of charge (with certain restrictions). In the near future, banks will likely find themselves partnering with Wal-Mart as they already are doing with Apple, and developing their own new products to stay ahead of the competition.
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