espite a rash of recent criticism from the financial services industry, Wal-Mart Stores Inc. continues to forge ahead. Much to the chagrin of Massachusetts bankers, the retailing giant recently applied to institute check-cashing operations at all of its 44 stores in that state.

On Oct. 31, 2005 Wal-Mart filed an application with the Massachusetts Division of Banks for in-store check cashing windows to handle payroll and government checks, money-orders and for insurance purposes. The retailer has no current plans for personal check services according to Wal-Mart spokesman Marty Heires.

Bruce Spitzer, spokesman for the Massachusetts Bankers Association, called this "a bad turn of events." He said the issue is not Wal-Mart's cashing checks, but rather it is the first time Wal-Mart has asked "for banking privileges in this state, and we are worried that it could set a dangerous precedent for further banking powers."

Wal-Mart currently has check cashing operations in stores located in 45 of 50 U.S. states, according to Heires. Massachusetts would be the 46th. The company also has filed applications in Rhode Island, New York, New Jersey and Connecticut.

Steve Wolf, Treasurer of Pay-O-Matic, a Long Island, N.Y.-based check cashing service, and former President of the National Check Cashers Association, said that Wal-Mart's activity on the check cashing front is not a new development in check cashing services, nor will it cause major disturbances.

"What Wal-Mart is doing is the continuation of a trend, not a brand new concept," Wolf said. "Supermarkets have been doing this for years." He noted that supermarkets generally do not charge for check cashing, and the fact that Wal-Mart does, adds "a new wrinkle."

Heires said Wal-Mart has offered payroll and government check cashing since 2003. "Our maximum fee is $3. That is 25 to 50% lower than our competitors," he said.

Traditional check cashing stores offer services above and beyond check cashing such as bill payment, money orders and prepaid services.

"Check cashing is a service of convenience," Wolf said. "Wal-Mart will take market share, and in some cases could be the 600-pound gorilla, but ultimately people will still use the location that is most convenient."

Wal-Mart and the ILC Applications

In the financial services world, Wal-Mart made a much bigger splash in July by filing applications with the Utah Department of Financial Institutions and the Federal Deposit Insurance Corp. (FDIC) to own and operate an industrial loan company, or ILC (see "Wal-Mart's Tenacity: Attempt Number Four at Banking," The Green Sheet, Aug. 22, 2005, issue 05:08:02).

ILCs are FDIC-insured but not subject to Federal Reserve oversight. ILCs are generally created to issue and/or process payment cards. Wal-Mart's control of one will allow it to become its own acquirer and save millions of dollars in transaction processing.

As is the case with many of Wal-Mart's actions, controversy follows. Since Wal-Mart's filing of the ILC applications, many have criticized the company for trying to bring its retail practices into the financial industry by consolidating services and pushing out the competition.

The FDIC, which will decide whether to insure a Wal-Mart bank, put the issue up for public discussion. From the end of July to mid-November, it received more than 1,500 comment letters.

Community bankers emerged en masse to plead against the prospect of a Wal-Mart-owned bank. They said the retailer's corporate philosophy does not coincide with a limited-use financial institution; it will eventually attempt to expand into full-service consumer banking to the detriment of local branches. (ILCs can operate just like banks: taking deposits, making loans, etc.)

In its ILC applications with the FDIC and the state of Utah, Wal-Mart maintains that it has no intention beyond transaction processing. The company cites the 1,100-plus community branches operating in Wal-Mart stores around the country as evidence.