Wal-Mart’s Unbanking Business

Wal-Mart doesn’t just want you to buy gas and groceries at its superstores these days. Now it wants your entire paycheck.

On Wednesday, the nation’s largest retailer unveiled plans to open 1,000 in-store MoneyCenters aimed at serving the 40 million or so people without traditional bank accounts. The main draw at the centers, which will be in about a quarter of all Wal-Mart stores by the end of 2008, is the cashing of government and printed payroll checks for the bargain price of $3 a pop. The retailer is also debuting a reloadable, prepaid Visa debit card that does not require a bank account or proof of U.S. citizenship.

This broad rollout of low-priced check-cashing and debit cards marks a milestone for the millions of “unbanked” Americans who have long had to pay rates as high as 10% of the face value of their paychecks in order to cash them and then pay cash for every single purchase they make because they do not qualify for a credit card or checking account. “These are our core customers. We probably have more than others of this underserved customer,” says Jane Thompson, president of Wal-Mart Financial Services, who notes that the average check-cashing customer at Wal-Mart earns $350 per paycheck and has never had a credit card before.

It’s also good business. While traditional banks have struggled to attract the unbanked without outrageous charges, check cashers and payday loaners raked in an estimated $11 billion in fees from this $1 trillion economy. Cleveland-based KeyBank, for example, has attracted just 5,500 new customers in the past two years with its own check-cashing business, but has yet to make a profit from it. One problem is that people who have never had a bank account are distrustful of banks as a whole and feel unwelcome in institutions where they could not qualify for a checking account in the first place, because of lack of proper ID or employment history. Even when banks do try to reach out to this population—such as Bank of America’s new credit card that does not require a valid Social Security number—there has been a backlash among opponents of illegal immigration.

The new centers leave plenty of room for the Wal-Mart to work with partners to add even more financial services such as mortgages and home equity loans later, something the company has not ruled out and competitors are already bracing for. Although Wal-Mart withdrew its bid earlier this year to become a full-fledged bank, amid opposition from community banks that feared such a move would put them out of business, Wal-Mart’s new Money Centers and MoneyCards are giving them a significant foothold in the financial services industry. The centers currently offer money orders, bill payment and phone cards in a newly designated space painted a bright, “firefly gold” in each store. Because the counters are open from 7 a.m. to 9 p.m. seven days a week, they are as quick and convenient as anything but 24-hour check cashers. The $3 check-cashing fee is far lower than the average 1% to 3% charged by regular check cashers, and the Visa MoneyCards cost $8.94 plus a $4.94 monthly maintenance fee. As with any Visa card, a PIN number or signature is required for each transaction, and the card can be canceled immediately if lost or stolen.

Check-cashing services have actually been available at Wal-Mart for several years. But until now customers had to wait in long customer service lines instead of having designated counters where they can make these transactions. “They are making this a priority and making it more visible to the consumer. This is something they really care about,” says Jennifer Tescher, director of the Center for Financial Services Innovation, a nonprofit that does research and advocacy work for the unbanked. “It doesn’t matter whether or not they have a bank charter.” And as countless small retailers can tell you, when Wal-Mart decides it cares about a business, it usually finds a way to dominate it.