When a company that gets 70 percent of its revenues from Wal-Mart announces that it is going to buy a small state-chartered bank, it seems relevant to wonder what the real impact of this acquisition might be. After all, it is possible that this new bank will expand to meet all kinds of banking needs through Wal-Mart's stores.
Since 1996, WoodForest National Bank has had small bank branches in a number of Wal-Mart stores. The branches offer basic checking, individual retirement accounts, savings accounts, and certificates of deposits. Checking accounts come with a MasterCard ATM card. Consumers with a ChexSystems record can still get a "second chance" checking account, while regular consumers have a choice of free checking or Choice checking. The latter has a balance requirement. The Wal-Mart stores also offer a chance for consumers to get the GoDirect/DirectExpress card. GoDirect is an ideal prepaid card that can store government payments. GoDirect cards are issued by Comerica.
They do not offer mortgages in the stores, and the mortgages that they offer through their national headquarters in Woodlands, Texas are limited to refinance loans.
The Wal-Marts still have a bifurcated set of financial services. When you check out, you will see Green Dot prepaid cards. These cards do come with fees, although Wal-Mart has negotiated lower fees with Green Dot for those cards. There are monthly fees, cash checking fees, and a few other costs.
This two-headed approach could soon change. Green Dot announced an intention at the end of February to buy Bonneville Bank for $15.65 million. Bonneville is a small bank. It has only 10 employees and equity capital of just $6 million. Its greatest asset is probably its Utah charter.
Green Dot would appear to have big plans for Bonneville. Green Dot has already said that they will put another $10 million in capital reserves into Bonneville. Given that Bonneville already has a 31 percent tier-one capital ratio, they will be sitting on a lot of
underutilized cash. There could be more. Green Dot is going to offer an initial public offering of stock, with an intention to raise $150 million.
Green Dot's application to the Federal Reserve Bank of San Francisco says that it will use the new charter to expand its existing line of prepaid debit cards, and potentially to offer a savings product in association with those cards several quarters into the future. Green Dot describes its interest in creating a more "vertically integrated" model.
I think it is worth asking how Green Dot's new bank will allow it to change its current offerings in Wal-Mart. I also think it is worth considering how the unequal power in the relationship between Wal-Mart and Green Dot might advance Wal-Mart's long-standing interest to acquire a bank. Wal-Mart would not have a charter. Still, many people have observed that Wal-Mart generates a lot of pressure on its suppliers. Wal-Mart is famous for exerting so much pressure on its suppliers that some observe that Wal-Mart takes over the products of its suppliers. Wal-Mart makes many of its customers consign their products. The inventory remains on the supplier's balance sheet even when it sits on the shelves at Wal-Mart. The final sale between Wal-Mart and the supplier is only consummated when a Wal-Mart customer rings up their purchase. Wal-Mart is able to avoid inventory costs.
Wal-Mart tried to buy a bank in 1999. They applied for an industrial bank charter in 2005. They were turned down. Their application provoked all kinds of protest from community bankers. In 2005, regulators report receiving more than 20 comment letters per day in opposition to a Wal-Mart charter.
At the same time, a number of consumer advocates wondered if a Wal-Mart bank might present an incredible opportunity for efforts at helping the unbanked. One in five Wal-Mart consumers have no checking account. Those advocates posited that Wal-Mart might introduce all kinds of pressure on bank fees. Imagine a $9.95 overdraft fee, for instance. How would that change how low-income households feel about signing up for a checking account?
Is Wal-Mart about to pull one over the eyes of the community bankers and the regulators?