Wal-Mart: The New Consumer Banking Powerhouse?

In just a few short weeks, you’ll finally be able to fulfill your lifelong dream of opening a checking account at Wal-Mart!

Ok, well, maybe that’s not exactly on the bucket list for anyone here. For millions of “unbanked” and “underbanked” Americans, however, this could be significant. Through a partnership with Green Dot (best known for their reloadable prepaid debit cards), Wal-Mart will offer customers a basic checking account which features no overdraft fees or minimum balance requirements, and a monthly maintenance fee of $8.95 which can be waived with a $500 monthly deposit.

Beginning this month, customers will be able to purchase a ‘starter kit’ at Wal-Mart for $2.95 which will allow them to make an initial deposit at the checkout register, manage their account via a smartphone app, withdraw cash from ATMs, and will provide them with a debit card that can be swiped anywhere MasterCard is accepted.

So Wal-Mart is offering basic checking accounts to low-income people... what’s the big deal?

The big deal is that the unbanked/underbanked population in the U.S. is huge. According to a recent Forbes article, 28% of the U.S. population, or about 88 million people, fall into one of these groups. That’s 88 million people who currently rely on ‘alternative’ financial services, such as payday lenders, check-cashing stores, and reloadable prepaid debit cards.

The drawbacks of these alternatives are well documented, mainly in that they are ridiculously expensive. According to Southern Bancorp, the average underbanked household spends approximately $2,500 per year on fees and interest alone. This may seem like poor financial literacy, but that isn’t always the case – many people in the U.S. actually can’t open a traditional checking account at a major financial institution. When setting up new checking accounts, many banks will screen applicants against a ‘ChexSystems’ database which tracks overdrafts, bounced checks, and fraudulent behavior. As Congress has clamped down on the amount of fees banks can charge charge for things like overdrafts, banks will often decline new deposit accounts for individuals with any negative marks in this database. Wal-Mart and Green Dot will forego this screening process, and instead use a proprietary model which they claim will allow virtually anyone over 18 with a valid ID to open an account.

If successful, this could have a significant impact on the unbanked/underbanked market, allowing low-income households access to a basic financial service most of us never think twice about. Many, however, have questioned the profitability of providing services to this low-end demographic – last year JP Morgan Chase abandoned their prepaid debit card experiment after just six months, citing regulatory headaches and underwhelming revenue generation.

So what does everyone think? Potential game changer by Wal-Mart and Green Dot? Or just a catchy headline that won't ultimately pan out?

 
SocratesIsMortal:

I've spoken with Walmart's head of health benefits about how they're unrolling a huge primary care physician network for their employees. Walmart gets pretty serious about a lot of endeavors, this consumer banking initiative could be one of them.

That's a great point. Part of me thinks Wal-Mart is trying to slowly re-brand themselves, away from "cheap retail" and more towards a "full lifestyle" brand for the low-income demographic.

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Wal-Mart has had such an offering for some time with a similar product in Blue Bird, partnered with American Express. Direct deposit, debit card, ATM withdrawal, check writing, etc. are all possible. Target has recently jumped on the bandwagon and began rolling out their own alternative to a checking account called REDCard

 
Babyj18777:
Cruncharoo:

Monthly fee of $8.95 is highway robbery I feel bad for any already poor people they are charging that to.

Better than keeping money under the mattress? $8.95 could be cheap relative to the exorbitant fees payday loans places charge...

When you're poor, sometimes all you have are bad choices.

Also keep in mind this is a demographic that's very prone to overdrafts. I read a survey awhile ago in which many low-income households actually prefer a predictable monthly fee rather than an "unpredictable" and potentially devastating series of $35 overdraft fees.

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Yeah I don't dispute any of that or what @"David Aames" said below. Like you said, all they have is bad choices I just personally feel bad that those are their options. I don't fault WM in any way, $500/month is a low barrier for the deposit so I hope people will set that up and save themselves some money.

This to all my hatin' folks seeing me getting guac right now..
 

what are you canadian or something?

i didnt read the post, but i imagine some of the fee is to offset the risk and like babyj18777 above me said, these fees are nothing compared to the payday loan fees out there

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Best Response
Janglejuice:

anyone else feel like educating unbanked population personal finance after reading this?

Educating someone on how to be financially responsible is difficult when they don't have money. I grew up poor. My mom was educated but I had a dad who left us high and dry and although my mom knew what to do it's very difficult to execute when, at different times, her main concern was putting food on the table and a roof over out heads. People don't want to bounce checks or hit overdrafts but when your main concern is getting a shitty dinner on the table tonight you're far less concerned with your banking history or credit score.

I dislike WM on many levels and I know they're not doing this banking thing out of the kindness of their hearts but I hope they can offer an alternative to check cashing and pay day loans.

 

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