There’s no question that the very idea of retail banking has been in turmoil ever since this thing called the Internet came along. Over time it’s only gotten worse, what with attacks from a range of mobile banking applications and contactless payments, most recently the potential phenomenon named Apple Pay. But could the biggest challenge to retail banking actually come from the world’s biggest retailer?
That would be Wal-Mart, of course. The global conglomerate has in the past made multiple forays into financial services, with varying degrees of success. That mixed record has given hope to traditionalists who maintain that the biggest barrier to entry into financial services remains the capital investment required. After all, if even one of the world’s largest corporations—with significant cash reserves, a massive supply chain and a huge global footprint—can’t storm the rarefied environment of straight-up banking, how can technology upstarts knock off industry stalwarts with a long history?
It’s a valid question, but somebody forgot to tell Wal-Mart. The company just offered details on GoBank, a new service that, starting in late October, will team up with Green Dot (best known for its prepaid payment cards) to offer checking accounts to just about everyone. Consistent with the overall Wal-Mart brand, the new service will be both ubiquitous and low cost. Essentially, anyone of voting age anywhere in the country can sign up. There’s no minimum, and no penalty for overdrafts or even bounced checks. Think how much your institution charges for those sins.
GoBank seems to target the same demographic Wal-Mart has had in its sights before: consumers with shaky or no credit history, the people that traditional financial services firms tend to avoid. This is by no means a small audience; according to the FDIC, some 10 million households have no contact with a bank at all, even of the digital variety. This forces a huge swath of individuals to turn to the underground for assistance, namely lenders with a questionable reputation and high interest rates. It’s also probably not a stretch to assume that many of them regularly shop at Wal-Mart anyway.
The company has a long history of marching to its own drummer. In fact, it’s even staying out of the Apple Pay frenzy for now—the company is instead in the Merchant Customer Exchange, a vendor-owned consortium for mobile commerce whose members also include 7-Eleven and Dunkin Donuts. Rules currently prohibit members from using a competitive payment service (though it might be wise to keep an eye on that one).
Wal-Mart’s past forays into banking have not gone well in part because of strong opposition from the financial services industry. This time, there are other motives as well.
Just as the company previously won business away from its rivals by cutting prices, it has since lost customers to retailers with even lower costs. Similarly, online retailers requiring less infrastructure represent vicious competition. And finally there’s Alibaba, the Chinese conglomerate that no one had heard of until it recently hijacked the business headlines. In this heated market, low-cost banking services offers a critical differentiator.
Of course, there are other arguments to be made here.
Wal-Mart has long drawn harsh criticism on a number of business issues—anti-union policies, inadequate compensation for employees, the lack of safety precautions at some suppliers in its vast network, and the effect a Wal-Mart store has on smaller towns, essentially wiping out small businesses that previously populated Main Street. Becoming a major player in banking, if indeed that happens, will inevitably draw greater scrutiny. Besides, the strategy of primarily targeting unbanked consumers is finite at best. To gain real traction, it will have to draw people away from traditional financial services institutions.
Ultimately, competition is always a good thing. Retail banking has experienced constant upheavals for a long time now. A little more, even from such a big entity, might benefit every constituency—especially customers.