al-Mart Stores Inc. has reached its tentacles into virtually every facet of the retail sector. The retailing giant sells food, clothes, tires, furniture and cars. Inside the stores you'll also find optometrists, garden centers, travel agents, even pharmacies. Consumers can literally use it as their one-stop shop. Wal-Mart also has leasing agreements with community banks around the country. In all, these banks have branches in more than 1,000 Wal-Mart stores.

With all these services, the retailer is a significant hub for electronic transactions. Jane Thompson, President of Wal-Mart Financial Services, estimates that the chain receives more than 140 million credit, debit and electronic check transactions each month.

The company announced in July the filing of applications with the Utah Department of Financial Institutions (DFI) and the Federal Deposit Insurance Corp. (FDIC) to own and operate an industrial loan company.

Industrial loan companies are quasi-banks that a handful of states have sanctioned for special-interest services. A few retailers have taken advantage of these laws in the past, but none as large as Wal-Mart.

Operating a bank would allow Wal-Mart to process, in-house, the millions of credit and debit transactions made in its stores each day. These days, Wal-Mart contracts out the processing, and First Data Corp. has a huge chunk of the retailer's business.

"Currently, we pay a small fee [per transaction] for banks to sponsor us into the payment networks," said Wal-Mart spokesperson Marty Heires. An industrial loan company that Wal-Mart could call its own would keep the money in the family, so to speak.

"We want to pay the fee to our own bank and then take the money and return it to customers in the form of lower prices," Heires said.

This is not the first time Wal-Mart has tried to buy an industrial loan company, in what bankers portray as an attempt at a backdoor entry into banking. In fact, this is the third time in the last six years that the retailing giant has tried to charter a bank.

Not that Wal-Mart doesn't already dabble in financial services. Most recently, the company introduced a co-branded Discover Financial Services card, which GE Consumer Finance issues. There also are payroll and government check cashing and, through the MoneyGram network, bill payment, money orders, and money transfer services are available at many local Wal-Mart stores.

Industrial loan companies differ from other types of banks in that there's no oversight by the Federal Reserve.

Other than that, these institutions, generally created for the express purpose of issuing and/or processing payment cards, can operate just like banks, taking deposits, making loans, etc.

Wal-Mart insists that it doesn't want to compete head to head with banks. "Our charter will be narrow. We have no plans to enter the banking business," Heires said.

Bankers, especially community bankers, don't buy Wal-Mart's assurances. "Mixing banking and commerce is a dangerous combination that would produce an excessive concentration of economic power, jeopardize the impartial allocation of credit, and extend the federal safety net where it was not intended," Camden R. Fine, President and Chief Executive Officer of the Independent Community Bankers Association (ICBA), a Washington-based trade group, said in a statement.

ICBA wants Congress to sew up the loophole in federal banking law that gives industrial loan companies the same freedoms as retail banks. "While [Wal-Mart's] application itself has been narrowly written, if the [industrial loan company] charter is approved, nothing would prevent a later amendment to allow precisely the type of branching and retail banking activities that raise so many concerns," the group wrote in a letter to Congress in early August.

The Utah DFI Web site describes industrial loan companies as offering "a versatile depository charter for companies that are not permitted to, or choose not to, become subject to the limitations of the Bank Holding Company Act or the Glass-Steagall Act."

Taken together, these two laws have created a Chinese wall separating deposit-taking banks and nonbank commercial enterprises for decades.