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How Walmart Could Succeed in Becoming a Bank

Walmart (WMT) is making progress in its efforts to turn itself into a full-service bank, despite lawmakers' lack of interest in granting the retailer a banking charter, a new report finds. The report, The Blended Walmart Business Model, from Filene Research Institute, also spotlights why Walmart is likely to win out in the end.

So far, Walmart has crept into banking in a number of ways:

  • It has succeeded in becoming an independent bank in Mexico -- one that charges a whopping 75 percent interest on personal loans. There are 22 bank branches and plans to hit 80 units by year end.
  • Its Sam's Club division recently began offering small-business loans.
  • Walmart is already the second-largest provider of money transfers, though a partnership with MoneyGram.
  • The company offers customers a prepaid debit card.
The report argues that financial-services companies should wake up and start considering Walmart a bank already -- because its low fees are a force to be reckoned with now.
Individual credit unions cannot afford merely to check the rate pages of other local banks. They must also watch and respond to the products Walmart keeps rolling out -- in the United States and in Mexico.
Walmart has tried and failed four times to get a U.S. bank charter. The financial industry, understandably, would like to keep its hefty margins and its fee payments to itself, and lobbies Congress heavily to oppose the move -- so far, quite successfully.

In the current climate of banking reform, Walmart might well win the right to be an official bank at some point. The retailer will likely keep trying to secure a charter forever because of the profit potential in banking. The study shows Walmart's average net profit margin on a retail item is 3.5 percent, where in financial services, it's between 6 percent and 9 percent.

Also, the current political mood is already one of cracking down on profiteering by banks. We've passed major financial reform this year that cut late fees and banks' ability to jack up rates. If Walmart can offer customers lower fees, the retailer has a strong case that consumers should be allowed to take advantage of that. At some point, they may have their way.

But even if that doesn't happen, Walmart will continue to make inroads into financial services. It's a great add-on service for the chain, and adds to profit margins.

Photo via Flickr user wwarby