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|  | JANUARY 27, 2005
By Wendy Zellner Wal-Mart, Your New Banker? [Page 2 of 2] END-AROUND? Could Wal-Mart really become a bank? First, it would have to take on current prohibitions on combining banking and commerce. The laws were designed to prevent a big player such as Wal-Mart from denying credit to competitors or shifting losses from its retail business to an insured bank. But many expect Wal-Mart to overcome those rules. Ronald Ence, vice-president of Independent Community Bankers of America, says Wal-Mart lobbied last year to expand the banklike powers of the ILCs. A bill that passed the House, but not the Senate, in 2004 would have allowed unlimited interstate banking, but only for those with at least 85% of their business in financial services. Wal-Mart denies any such lobbying. It tried to buy a savings bank in Oklahoma in 1999, only to be blocked by the Gramm-Leach-Bliley Act, which overhauled federal banking law. And the California legislature halted Wal-Mart's plan in 2002 to buy a small ILC. THE SEARS EXPERIENCE. Yet if Wal-Mart were to gain full banking status, it would be able to offer everything from checking and savings accounts to mortgages, car loans, and even small-business loans at prices that rivals could be hard put to match, let alone beat. "There's no question, they want to have a nationwide financial-services network. If they do, there's no doubt in my mind they'll be able to do to community banks the same thing they've done to the local grocery store and the local hardware store and the local clothing store," says the community banker group's Ence. Wal-Mart insists its financial plans don't depend on owning a bank or a thrift. "Our strategy is what you see," says Wal-Mart's Thompson, who was once executive vice-president of Sears Roebuck's (S ) credit business. The services Wal-Mart offers are aimed squarely at its core, lower-income customers and employees. Many are among the estimated 56 million American adults don't have a bank account. "Helping the underserved customer gets right at what we like to be known for," says Thompson, who joined Wal-Mart in May, 2002. More important than the unit's profits, she says, is that these services bring customers into stores more often. She seems to have learned from Sears' ill-fated 1980s effort to create a financial supermarket with its Allstate insurance, Dean Witter brokerage, and Coldwell Banker Real Estate units. Sears lost focus on its core business and found that many customers didn't want to buy mutual funds or insurance from the same place that sold them appliances. "My whole thing is about starting with the customer," says Thompson, who joined Sears in 1988 and took over its credit operation in 1993. NO DAMAGE YET. Even though Wal-Mart may be following a gradual approach to avoid Sears' mistakes, it occasionally hints at bigger ambitions. On its Web site, Wal-Mart describes itself as "a trusted name in financial services." In stores, it's slapping its powerful brand on the money centers operating there. So far, big rivals say Wal-Mart isn't hurting them. 7-Eleven (SE ), which offers check-cashing, money orders, and the like through 1,000 electronic store kiosks, says it's focused on convenience, not offering the lowest price. Likewise, Eric Norrington, a spokesman for Ace Cash Express, the nation's biggest check-cashing chain, says Wal-Mart hasn't affected his company's pricing or growth. "Wal-Mart has validated the importance of this market segment. That's attention we welcome," he says. But as toy retailers, grocers, and even jewelers have painfully discovered, complacency in the face of Wal-Mart can be suicidal. Given the behemoth's long interest in the financial arena, technological savvy, cheap capital, and instant national reach, small and midsize banks, in particular, are right to be paranoid. Even big ones should be wary. "The mistake would be to stick your head in the sand and try to convince yourself that Wal-Mart is not a factor," says Bain's Markey. For no matter what the obstacles, Wal-Mart seems determined to be a force in finance.
 Zellner is BusinessWeek's Dallas bureau chief Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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