Aiming for poor pockets, Wal-Mart offers wire transfers

Wal-Mart (WMT) is muscling in on the financial services industry.

The retailing giant is offering a new cash-transfer service called "Walmart-2-Walmart" that's geared toward the one quarter of Americans who are either "underbanked" or lack a bank account.

With Wal-Mart's announcement that it's getting into the wire-transfer business, shares of MoneyGram (MGI) took a hit, tumbling as much as 21 percent, while Western Union (WU) also slid. Raising the competitive stakes for financial-services companies isn't only Wal-Mart's sheer size -- it has more than 4,200 locations in the U.S. -- but the fact that the retailer is offering the service for less than its competitors.

The idea for creating its own cash-transfer service came after Wal-Mart's chief executive received a letter that complained about high fees for transferring small amounts of money, writes Daniel Eckert, senior vice president of services for Wal-Mart U.S. on the company's blog.

"This wasn't the first time we heard this complaint. It was one of many but it was the one that made us step back and say to ourselves, 'there has to be a solution,'" Eckert wrote.

"Walmart-2-Walmart offers a simple and transparent fee structure with just two price points: customers can transfer up to $50 for $4.50 and up to $900 for $9.50," he added.

By comparison, sending an instant $900 money transfer via MoneyGram carries an $85 transfer fee, according to its site.

While Wal-Mart will be going head-to-head with MoneyGram, it also remains a business partner with the company, through a joint service offered by Wal-Mart. That service doesn't carry a $900 limit, unlike Walmart-2-Walmart, and will continue to operate, Eckert told The New York Times. Wal-Mart didn't immediately return a request for comment.

Even though Wal-Mart is acting as a disruptor to some cash-transfer companies with the new product, its end-game might not be to shake-up the financial industry at all. After all, Wal-Mart has been badly hit in recent quarters by consumer cutbacks, as shoppers digested higher payroll taxes and cuts to food stamps.

By aiming for the 28 percent of consumers who either lack a bank account, or a savings or checking account, Wal-Mart might end up spurring store purchases. After all, when a customer receives a wire transfer at a Wal-Mart location, she might just decide to pick up a few items afterwards.

Faye Landes, an analyst at the Cowen Group, told The Times, "They've had five straight quarters of negative traffic in the U.S., so every little bit helps."