When Wal-Mart Stores Inc. raised the white flag in its long attempt to enter U.S. banking, many viewed it as a victory for community banks. Yet, the greatest beneficiaries may be card issuers and processors.
Wal-Mart's stated goal had been to cut the interchange fees it pays by doing its own bankcard transaction processing. Potentially, Wal-Mart could also have issued card Association-branded cards.
That motive was in keeping with Wal-Mart's financial strategies, according to Jim Eckenrode, Banking Research Fellow for Financial Services Strategies and IT Investments, TowerGroup. Reducing Wal-Mart's domestic interchange bill will be next to impossible without a banking license, he added.
"However, this should by no means be interpreted as a retreat by Wal-Mart from the financial arena," Eckenrode said. "TowerGroup expects the company to continue expansion of financial products and services targeted at its core customer demographics."
Wal-Mart announced March 16 a withdrawal of its application to the Federal Deposit Insurance Corp. seeking permission to buy an industrial loan company (ILC) charter. Wal-Mart President Jane Thompson attributed the decision to the FDIC's January extension of the moratorium on ILC applications.
Thompson again countered criticism the company was hiding intent to begin community-based retail banking at its stores. "At no stage did we intend to use the ILC to establish branch banking operations, as critics have suggested. We simply sought to reduce credit and debit card transaction costs," she stated.
"Wal-Mart made a wise choice," FDIC Chairman Sheila C. Blair stated. "This decision will remove the controversy surrounding their intentions."
"This doesn't spell the death knell for Wal-Mart for financial services in the United States," Eckenrode said. The retailer will move forward with wire transfer and remittance services to immigrant populations here.
Wal-Mart will pose a competitive threat to banks "that have gotten into the cross-border remittance game," such as Citigroup Inc., Grupo Santander and BBVA, which just bought Compass Bancshares Inc. and has dominated U.S.-Mexico money transfers, he added.
Wal-Mart has secured a license for full-service banking in Mexico, where supporters outweighed critics, believing more competition will improve access for that country's unbanked, Eckenrode said. And the retailer is seeing growth rates in sales and profits two to three times as high in international markets as they are earning at home. But domestic community banks can rest easier now, Eckenrode said. 
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