Next Up: A Wal-Mart Credit Card?

With banks hiking rates and fees, the time may be right for Wal-Mart to bring its cost-cutting ways to the credit-card industry

By Christopher Palmeri

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Is Wal-Mart Stores (WMT) going to bring its price-chopping ways to the credit-card industry? BusinessWeek has learned that the retail behemoth has held talks with Herbert and Marion Sandler, founders of Golden West Financial Group, about a new credit card that would offer lower interest rates and few of the onerous fees associated with traditional credit cards.

Given Wal-Mart's massive customer base and the current turmoil in the banking industry, the move could have a big impact on lending in the U.S. Just the idea of it is winning praise from consumer advocates, some of whom have battled the controversial retailer in the past. "We always welcome any new credit cards if they offer a solid, low-cost product that doesn't have trips and traps," says Travis Plunkett, legislative director of the Consumer Federation of America, which opposed Wal-Mart's 2006 effort to get a bank charter in the U.S.

Wal-Martsays it has talked to people about what some in the financial-services industry call a "clean card," but the company has no immediate plans to introduce one. "We are not pursuing these ideas at this time," says Wal-Mart spokeswoman Linda Blakey. The Sandlers sold Golden West, a big mortgage lender, to Wachovia (WB) just before the housing bubble burst. Wachovia is now being acquired by Wells Fargo (WFC).

The timing for a Wal-Mart entry seems right. Banks nationwide have been cutting credit lines, hiking interest rates, and raising fees for credit-card customers they deem high-risk. Those moves come amid a surge in credit-card borrowers running late in their payments because of the slowing economy and the easy lending terms of years past.

Wal-Mart Feels the Credit Squeeze

Wal-Mart has been seeing the impact of that credit tightening in its 4,200 U.S. stores. The company said at its annual analysts meeting on Oct. 27 that credit-card use at its stores fell 7.5% in the past year. "Customers have maxed out on their credit limits," said the company's U.S. president, Eduardo Castro-Wright. "That has dramatic consequences for a lot of retailers. With credit maxed out, the ability to buy discretionary items get curtailed."

Wal-Mart has long coveted a larger role in financial services. It recently opened its 700th MoneyCenter. Among their product offerings, the centers offer check cashing for a $3 fee, the ability to pay utility bills electronically for 66¢, and money transfers for $11.50. The company claims its financial services are priced as much as half that of competitors. In addition, 1,500 Wal-Mart locations have space leased to local banks, among them Arvest Bank, a privately held, $9.5 billion institution based in Bentonville, Ark., that counts Walton family members among its investors.