How Walmart Is Making Itself Into a Bank for the Unbanked
Walmart (WMT) is launching a bank in Canada and buying a piece of the company that operates its debit card operation in the U.S. -- an ambitious financial services strategy that's meant to tie customers more tightly to its stores.
Battling Tesco (TSCO) in the U.K. has helped hone Walmart's ability to deliver banking services, and its latest U.S. and Canadian initiatives provide the vehicles that will bringing its increasing experience to bear.
Lobbying by established financial-services firms denied Walmart a bank in the United States. However, it has taken a small but significant stake in its debit card partner Green Dot, which itself recently moved to buy a Utah-based bank. In developing a closer relationship with Green Dot, Walmart can learn more about how its business provides services to "unbanked" consumers who don't have ready access to financial services, a group some put at 73 million adults in the U.S. alone.
Two decades ago, as it experimented with food in developing supercenters, Walmart bought a food distributor, McLane. The retailer didn't as much want to use its services -- which were focused on convenience and drug stores -- so much as to gain access to its expertise and advanced processes, which it was able to adapt to the self-distribution system it was establishing for the food operations.
With help from Green Dot, Walmart can keep expanding customer access to services such as low-cost wire fund transfers that it has grown in the U.S. and built upon by introducing relatively inexpensive prepaid debit cards. They act as an alternative payment method for customers lacking credit cards or checking accounts.
Financial services can be a huge opportunity for a retailer, not only by providing new revenues but giving customers more reasons to shop stores and click onto websites. Walmart already has seen up close how its rival Tesco has crafted financial services programs using discounts and rewards to secure a substantial U.K. market share lead.
Tesco allows the average Briton to buy insurance and even pick up a personal loan as conveniently as milk and eggs and in a familiar environment that is certainly less intimidating than a bank to many customers. Through Tesco, British consumers can secure credit cards, mortgages personal loans and savings accounts as well as a variety of insurance products for car, motorcycle, van, travel, business, home, life, health, dental and pets. The retailer even will compare prices on utilities and set a customer up with the cheapest provider.
Walmart's ASDA operation in the U.K. has been playing catch up with Tesco, but today offers loans, insurance and even a rewards credit card. In Canada, Walmart is setting itself as a low-price alternative shop for banking services, just as Tesco does in the U.K. Bloomberg reported that the no-fee MasterCard Walmart issued in Canada has an 18.99 percent interest rate. A MasterCard issued by retail rival Loblaw carries a 19.97 percent rate.
Although it's well behind Tesco in this regard, Walmart has taken steps to introduce loyalty elements into its financial services program. By coaxing consumers to use its cards, Walmart check stands generate more data about what individual customers are purchasing. The retailer can use the data provided to target marketing efforts more efficiently.
In Canada, Walmart's first banking move was issuing a MasterCard with a cash back deal, and so establishing a basic loyalty reward from the outset. In the U.S., the retailer has begun offering prepaid debit card users cash back on fuel purchases made on the card.
Walmart has an opportunity to expand financial services in North America, particularly at a time when many consumers are finding credit harder to come by. Loyalty programs can encourage participation and provide insights that the retailer can use to enhance its prospects as an alternative bank.
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