News

Banks fight Wal-Mart's application for bank charter

April 20, 2006

WASHINGTON - Wal-Mart Stores Inc. hopes to pacify growing resistance to its application for a bank charter by insisting it has no intention of offering retail financial services. (Read also, FDIC schedules hearings for Wal-Mart Bank application.)

On April 10, during the first of three expected public hearings before the Federal Deposit and Insurance Corp., Wal-Mart representatives said the company expects to use Wal-Mart Bank only to process the $2.6 billion in transactions that flows through its stores every month. Wal-Mart holds an Industrial Loan Company charter in Utah but requires federal deposit insurance from the FDIC to launch the bank.

Representatives of the nation's banks expressed doubts, citing past efforts by the retail giant to develop its own branches and in-store self-service financial network, including ATMs and kiosks.

"Wal-Mart has attempted unsuccessfully on more than one occasion since 1999 to enter the full-service banking business," said Arthur Johnson, chairman and chief executive of Grand Rapids-based United Bank of Michigan. Johnson testified before the FDIC on behalf of the American Bankers Association.

"In addition to its attempts to obtain a bank charter, Wal-Mart has begun testing full-service Wal-Mart money centers for using stored-value cards, debit cards and ATMs," he said. "It is also rolling out its Money Center Express machines, which will permit customers to use credit or debit cards in a wide variety of ways."

Jane Thompson, president of Wal-Mart Financial Services, said Wal-Mart had sought approval for branch banking in the past, but the company's strategies have since changed. Wal-Mart, she said, has fully embraced the contracts it has with more than 300 banks and credit unions that lease in-store branches in 1,150 Wal-Mart stores. In fact, Wal-Mart plans to lease branches in another 250 of its stores by 2009, most of them long-term commitments of up to 15 years.

"You will not see a Wal-Mart Bank in a Wal-Mart store," Thompson said.

But Thompson was the minority, appearing with representatives of more than two dozen groups, almost all of which oppose the bank charter.

The nation's biggest retailer seeks the bank charter to be able to process its own transactions - credit card and debit card sales and the conversion of checks to electronic images, Thompson said. Processing transactions will allow Wal-Mart to bypass a required sponsor bank to access the payments system and save the company millions of dollars a year.

The Wal-Mart Bank, because it has the sole customer (Wal-Mart) of the parent company, will pose little risk to the payments system, Thompson said. In addition, Wal-Mart expects the bank to implement Visa and MasterCard International's Payment Card Industry (PCI) standards for data security protection before it starts operations, making it the first bank to ensure that all of its merchant customers comply with PCI, she said.