May 29, 2014
Walmart is Coming for Your BanksBy Julie Siwicki
In April Walmart announced the launch of a new money transfer service. I did a double take on the service's low price: $9.50 to send up to $900 from one Walmart store to another – that’s as much as $66.50 cheaper than the price of competing services at Western Union and Money Gram.
This is just the latest example of Walmart's foray into the financial services industry. In 2012 the retailer launched the Bluebird prepaid card with American Express. The product has no monthly fees or minimum balance requirements, making it more affordable than the norm. The cost of cashing a check at Walmart's Money Center is a transparent flat rate, often cheaper than independent financial services centers that take a large percentage of a check's total. The big box store also offers car insurance “one stop shops” at a growing number of locations, and it houses bank branches with “convenient hours, free financial education and unusually forgiving account features”. All in all, Walmart seems to consistently deliver more budget-friendly financial tools than its competitors. And not only do its financial products come at a lower price for consumers; they are all offered in the same place, easing the burden on people who are squeezed for time and transportation.
The company competes on low prices in its retail department and now with its financial products and services. But at what real cost to consumers?
Now that Walmart is extending its influence deeper into the realm of household finance, it may be time to re-visit the debate about its role in the economy. The standard arguments against the retailer’s unfair labor practices and its ability to price out small businesses still stand. Now, with its competitive money transfer pricing, Walmart is poised to undercut much larger competitors in the financial services industry. Taken to an extreme, a Walmart monopoly could endanger future financial product innovation.
A new angle on the Walmart debate might focus on the difference between products that meet consumers' short-term versus long-term needs. Walmart's low prices appeal almost exclusively in the short-term. Low-income families shop, cash checks, transfer money, and bank at Walmart because paying lower prices helps them to meet urgent needs. This is no doubt useful for households doing all they can to stretch a dollar.
In contrast, the retailer's array of financial services holds few options that serve consumers' long-term interests. Walmart-affiliated bank branches have been found to draw customers like the Taylors into vicious debt cycles akin to payday loans - not by lending to them per se, but instead with their overdraft policies. Account-holders can “borrow” the $500 overdraft limit then pay it back, plus a $30 charge, with their next direct deposit. Appealing to short-term consumer needs with overdraft fees that are “cheaper than a payday loan,” these big box banks undermine the long-term financial health of many customers.
It is hard to deny that Walmart’s low retail prices benefit low-income consumers, especially now that they are making financial products more affordable too. But given the corporation’s questionable track record on maintaining the financial health of its employees and their neighborhood economies, and given the way its financial products can meet short-term needs while creating long-term problems, we’ll be watching Walmart's expanding role in the financial services ecosystem carefully.