Wal Mart Faces Critics Over Banking Request

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Wal-Mart Faces Critics Over Banking Request

By: David Utter
2006-04-10

The world's biggest retailer has applied to open a bank solely to permit it to do its own electronic payment processing, but opponents believe Wal-Mart would eventually branch into broader financial services.

The FDIC is scheduled to hold public hearings today and Tuesday on Wal-Mart's application to receive a charter for an institutional bank it wishes to open.

Wal-Mart Faces Critics Over Banking Request

This will mark the first time the FDIC has ever held public hearings for such an application. Testimony from about 70 witnesses over two days, plus another hearing in Overland Park, KS, on April 25th, has been scheduled.

With Wal-Mart's (WMT) strength at running an efficient operation eroding, the company has sought ways to improve its bottom line. Anything Wal-Mart does happens on a very large scale; the company operates globally, with over 3,000 stores.

The company pays a correspondingly higher amount of payment processing fees, charged to Wal-Mart every time a debit or credit card transaction takes place. In recent years, Wal-Mart changed the way it processes debit cards, requiring customers to use a PIN so the transaction can be processed on the less expensive network those payments use.

To gain savings on the credit card side, Wal-Mart wants to do what companies like Target (TGT) and GE (GE) have already done: open a bank and do the electronic processing itself.

But the prospect of Wal-Mart entering the institutional banking arena, by opening an ILC in Utah as Target did, has frightened politicians, bankers, unions, and consumer groups. All have voiced public complaints against Wal-Mart operating a bank, and do not trust it to stay limited to payment processing.

Already the Missouri Senate has passed a bill aimed at barring Wal-Mart from operating banks in the state. Wal-Mart has claimed the bill does not affect it since it does not have plans to open branches anyway.

Those in favor of Wal-Mart entering the banking field beyond an institutional level cite the same cost savings potential for financial services that its retail sales offer to consumers. Commercial banks with their seemingly endless roster of fees have not earned as much goodwill as they would like to believe.

It is thought that Wal-Mart's application, and the FDIC's process, will focus on the purely legal grounds Wal-Mart needs to meet. Opposition from the public and banking interests probably will not be enough to derail this application, but the FDIC's response will likely trigger lawsuits no matter what it decides.

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Tags: Wal-Mart, FDIC

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View All Articles by David Utter

About the Author:
David Utter is a staff writer for InternetFinancialNews and WebProNews covering technology and business.


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