Monday, April 10, 2006

ING, Emigrant, HSBC,… Wal-Mart?

Author: Nick
Category: Money
Topics: ,

So it seems that Wal-Mart wants to give the banking business a try. The funny thing is that any such Wal-Mart bank would likely have just one customer: Wal-Mart itself. That’s because the company produces enough credit and other electronic payments that it could save millions of dollars a year by servicing its own transactions.

So why are banks up in arms over Wal-Mart’s plans? Because they fear that Wal-Mart may one day seek to expand its banking service to other customers…

Opponents are not convinced. They portray Wal-Mart’s proposed in-house bank–which would handle the 140 million credit, debit card and electronic check payments the company handles each year–as leading eventually to full-scale banking with retail branches that would destroy local banks.

While I’d certainly love to see the Wal-Mart happy face work its magic on the rates of high-interest savings accounts, I can understand why there is such apprehension over the plans for a Wal-Mart internal bank. Just think about what Wal-Mart stores have done to local and even chain grocery stores. About 15 years ago where we previously lived just outside of Baltimore, there were half a dozen small grocery stores in the area. Their employees were well-paid and happy with their jobs, and the quality of their products and service was superb. Then a Wal-Mart came to our neck of the woods and every single one of those small stores was gone within a few years. There were even chain stores in the area that were forced to close locations that could no longer compete with Wal-Mart.

Now imagine if Wal-Mart started opening banks around the country. With their financial power, they would absolutely destroy small bank branches, and I bet the likes of Bank of America and Wachovia wouldn’t even be able to stand up to a Wal-Mart bank for long. And with a combination of banking and retail supremacy, the effects on the national economy could be devastating.

Banks aren’t taking Wal-Mart’s plans sitting down. The FDIC has scheduled an unprecedented set of hearings in response to the thousands of complaints it has received on the subject of Wal-Mart’s banking ambitions. I think the likelihood of government approval for a Wal-Mart bank (even with Wal-Mart as its only customer) is slim, but the battle is sure to be a long one.

No comments yet.

Sorry, the comment form is closed at this time.