Wal-Mart's new US money-transfer business that undercuts fees charged by Western Union, MoneyGram seen as move toward forming its own bank; retailer has long sought entry into financial services

Cindy Allen

May 30, 2014 (The San Diego Union-Tribune) – Wal-Mart Stores Inc., with some 4,000 stores nationally, recently launched a money transfer business that undercuts the fees charged by market leaders Western Union and MoneyGram, and is causing some distress among bankers.

That's because Wal-Mart (NYSE: WMT) has made several attempts to start a full-service bank to deliver financial services via its massive store footprint.

Although most local bankers interviewed on the issue said the recent move into money transferring doesn't impact them, they said the retailing giant clearly wants to extend its reach into the financial services realm.

"I absolutely think that this is a step" toward forming a bank, said Alan Lane, chief executive at San Diego-based Silvergate Bank, which has nearly $700 million in total assets. "How far they'll be able to go with this, who knows?"

The money transfer unit, called Walmart-2-Walmart, launched April 24. It enables customers to send up to $900 from one store to another. The fees are $4.50 for transfers up to $50 or $9.50 for those up to $900.

Wal-Mart has contracted with Ria Financial Services, a subsidiary of Euronet Worldwide, to provide the transfer services. The service is only good within the stores in this country, so it doesn't threaten the massive money transfer industry aimed at moving cash from this country to outside the U.S. borders, primarily Mexico. Last year total funds sent to Mexico alone from this country totaled about $22 billion, according to a World Bank report.

Wal-Mart still contracts with MoneyGram for international money transfers, but the partner has to be feeling a bit anxious given the amount of business it stands to lose.

Although the new business line will undoubtedly enhance its annual revenue streams, Wal-Mart, the nation's fourth-largest company ranked by a market capitalization of about $250 billion, has long sought an entry into financial services in a much bigger way.

In 2005, the company sought to acquire an industrial loan company in Utah, ostensibly to save money on processing credit and debit card transactions. But the banking industry saw it differently and unleashed a massive campaign raising concerns that Wal-Mart intended to roll out a retail bank. In 2007, the company withdrew its application to operate a special bank charter.

In 2002, Wal-Mart tried to buy Franklin Bank of California in Orange County, an industrial bank. Responding to fears that this would open the door for a national bank, the California Legislature passed a law that prevented nonbanks from owning an industrial loan charter.

Local community bankers said they think Wal-Mart has designs to operate its own bank someday, and they view the recent launch of the money transfer line as another step in the process.

"I do believe they are interested in furthering relationships with their customers" and in being more consumer focused, said Rick Sanborn, CEO of San Diego-based Seacoast Commerce Bank, which has about $346 million in assets.

It would seem to be a good strategy on Wal-Mart's part, given that increased government regulation of the banking industry has caused many community banks to cease offering many consumer-oriented products and to concentrate instead on small business customers, Sanborn said.

Allowing Wal-Mart to offer these banking services would cause-a problem because the retailer currently isn't regulated as a bank, and if problems occur with the retail segment, that could impact the bank, Lane said.

Banks are highly regulated by the government because these entities provide protection to customers' money, he said. Letting a retailer into this business would blur the lines, and "it's dangerous if you start blurring those lines," Lane said.
(c) 2014 San Diego Business Journal

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.