Home > Personal Finance > The Big Box Bank: Wal-Mart Makes a Play for the Underbanked

Comments 1 Comment

As you approach the checkout counter, you grab a stick of lip balm because the display reminds you you’ve just run out. You eye the rows of candy — man, I could really use some chocolate — so you toss one on the conveyor belt. Oh, one more thing: You’d like to open a debit card.

Just like that, you can run all your errands in once place: Wal-Mart.

More people work for Wal-Mart than live in Houston, the fourth-largest city in the U.S. It’s the largest company in the country. Suffice it to say that Wal-Mart, which reported $476.3 billion in revenue in 2014, provides many services for the American consumer.

Each store offers different services — some have hair salons, restaurants, optometrists or photo studios — and your local Wal-Mart might include a MoneyCenter, where you can get a variety of financial services, even a checking account. Depending on where you shop, you can pay your bills, cash checks and pay for your groceries, all in one transaction.

At a Wal-Mart Express in Chicago, the price list for MoneyCenter products hangs adjacent to the cigarette display. It’s odd to think you might ask the cashier to throw in a prepaid debit card with your Us Weekly, but that’s certainly how it’s designed. If you’re more of a self-checkout person, there’s the MoneyCenter Express terminal: Conveniently located steps away from the Redbox stand, this kiosk spits out prepaid debit cards like a vending machine.

The most recent addition to Wal-Mart’s suite of financial services, announced Jan. 20, is Wal-Mart Direct2Cash, which allows customers to pick up their tax refund — in cash — from Wal-Mart. Taxpayers going through one of the 25,000 tax preparation locations using Direct2Cash software can choose to receive their cash refunds in Wal-Mart stores for a maximum fee of $7. This may be cheaper than paying to deposit a paper check (if you don’t have a bank account) or requesting a refund through a prepaid debit card, which often involves a handful of fees.

The big box retailer’s foray into financial services doesn’t stop there, however. You can get credit cards, prepaid debit cards, money transfers, check printing, check cashing, tax preparation and auto insurance through Wal-Mart’s MoneyCenter. You can even purchase a GoBank mobile checking account “starter kit” at Wal-Mart, an FDIC-insured product from GreenDot Bank. You can quite literally throw a checking account in your shopping cart. (Anyone can sign up for a GoBank mobile checking account online, but Wal-Mart is the only retailer with the starter kits — they cost $2.95.)

Wal-Mart, however, isn’t a bank, and according to a company spokeswoman, it doesn’t want to be one. Still, you could function pretty well in our diverse economy using just the financial services offered by the mega-retailer. Whether or not that’s a good idea is a controversial topic.

The All-in-One Approach

Wal-Mart’s public stance on offering financial services to its customers is very much aligned with everything else it does: We make it easy to save money, the company says.

“We’re on a mission to use our size and scale to solve problems for our customers,” said Molly Blakeman, a Wal-Mart spokeswoman. “We’re taking products that are often costly and confusing and making them simple and affordable.”

It’s a nice idea, and there’s plenty of truth to it. Of course, it also can’t hurt to have customers handling their finances in the same place they shop. Before we dive into the implications of getting your tax refund within the same walls that contain millions of dollars’ worth of consumer goods, let’s focus on that first part: cheap, easy access to financial tools.

In 2013, nearly 9.6 million American households (7.7%) didn’t have access to basic financial services — they don’t have an account at an FDIC-insured financial institution — either because of where they live or as a result of past financial troubles, according to the 2014 FDIC report on unbanked and underbanked Americans. About 24.8 million households were considered underbanked, meaning they have an account but use alternative financial services, like payday loans, check cashers, prepaid debit cards and auto title loans. Together, the unbanked and underbanked make up 27.7% of U.S. households. Banking status is unknown for about 5% of households.

A variety of enterprises have attempted to serve this population, many of which have a reputation for offering expensive, opaque and sometimes predatory products. For the last several months, the Consumer Financial Protection Bureau has accepted consumer complaints about payday lenders and the prepaid debit card industry as part of its effort to weed out bad apples that are preying on underbanked Americans.

For the underbanked, Wal-Mart lives up to its ambition: Its products are easy to access for many consumers, while carrying fees often lower than those of competitors.

“I’ve watched them with great fascination and, frankly, admiration for their willingness to experiment in this space,” said Mark Pinsky, president and CEO of Opportunity Finance Network, a group of community development financial institutions (CDFIs) that focus on serving low-income, low-wealth and other disadvantaged consumers. “They are making it simple.”

For example: To cash a check at Wal-Mart, the maximum fee is $3 for a check up to $1,000, and $6 for a check of greater value. Other check-cashers, whether they be banks or not, have varying fee structures, some of which carry a flat fee or take a percentage of the check’s value. Chase, the largest bank in the U.S., charges $6 to non-customers cashing a check. Fifth Third charges non-customers $4 for checks less than $400 and 1% for checks of greater value. PNC charges non-customers $10 and won’t cash anything larger than $1,000. At some banks, it’s free to cash a check, whether you do business there or not.

Still, financial experts aren’t hailing Wal-Mart as the cure-all for the millions of consumers stuck beyond the reach of conventional banks.

It’s a Retailer, Not a Bank

Even if unbanked consumers don’t go to Wal-Mart to manage their finances, they’re probably using products the retailer offers, like prepaid debit cards, which can be more expensive than bank-issued credit and debit cards, and don’t carry the same protections. That problem isn’t isolated to Wal-Mart products, so if what the retailer offers is a more affordable version of these common tools, why not just go to Wal-Mart and benefit from the convenience?

Perhaps the biggest difference between Wal-Mart and traditional financial institutions is the most obvious: It’s a retailer. It sells things. How do you help people manage their money when your goal is to get them to spend it under your roof?

“Outside of a traditional bank, there are a number of alternative services, like those offered at Wal-Mart, that can be good options for people,” says Lauren Saunders, associate director for the National Consumer Law Center. “Frankly, the biggest danger is just the temptation to spend your money at Wal-Mart.”

Sure, the phrase “Save Money” makes up half the retailer’s slogan, but the Wal-Mart MoneyCenter offers no such mechanism for personal savings.

“I hope that somewhere they’re doing a beta test when you offer people a savings product alongside the refund,” Pinsky says, referencing Wal-Mart’s Direct2Cash product.

Two products offered by Wal-Mart — BlueBird (through American Express) and GoBank — allow users to rope off funds using “SetAside” and “Money Vault” features, respectively. As a way to work toward savings goals, you can designate some of your money as off-limits, though you can still transfer it back and forth to the spending portion of your account. Unlike most savings accounts, there aren’t limits on how often you can transfer funds. The potential to save is there, but it’s not a centerpiece of the Wal-Mart MoneyCenter.

For consumer advocates, this inherent conflict of interest trumps all. No matter the convenience factor, a place where you both manage and spend your money sends up red flags, as far as your finances are concerned.

That’s not to say Wal-Mart isn’t a valid resource for people with little or no access to traditional banking services. Rather, it highlights the need for more sustainable solutions. That’s something researchers and experts in the field are well aware of, and a great deal of work is going into developing potential solutions for this population.

In the meantime, there’s always Wal-Mart.

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • http://www.potencialmillonario.com/ Felix A. Montelara

    The 24.8 Million unbanked are better off using the services provided by Wal-Mart than using the alternative. It is definitely cheaper and a better deal.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team