I’d say Bank Transfer Day was a big success for credit unions. However, like many laws and initiates, “The Law of Unintended Consequences” likely kicked into effect: Wal-Mart (WMT) may have unexpectedly benefited from BTD as well.
I’m not here to debate the merits (or demerits) of Big Banking vs. Wal-Mart. Whatever your opinion, I think it’s difficult to argue with this: Wal-Mart would likely be one of the last companies the BTD folks would want to help.
Bank Transfer Day Successes
- About 650,000 U.S. consumers opened credit union accounts between September 29 (when Bank of American announced a plan to charge its debit card users a $5 monthly fee) and November 5, Bank Transfer Day, according to the Credit Union National Association. That compares to an average of 80,000 new members a month the rest of the year.
- New accounts opened during the period noted above resulted in $4.5 billion in funds for credit unions.
- On Bank Transfer Day alone, about 40,000 consumers opened credit union accounts, resulting in $80 million in new funds.
How Bank Transfer Day May Have Helped Wal-Mart
Bank Transfer Day participants were encouraged to transfer their money from commercial banks to credit unions. Most of them probably did just that. However, there are likely some who–so fed-up with banks in general–closed their existing account, didn’t open a new account and have started to use (or plan to start using) Wal-Mart financial services.
Yes, Wal-Mart financial services. If it’s not already enough that you can shop for a gazillion categories of products at Wal-Mart, you can now also do some of your typical banking transactions there.
How Big is Wal-Mart?
Wal-Mart is the largest retailer in the world and one of the five largest corporations in the world by sales.
How Wal-Mart is Getting Bigger: Banking
Wal-Mart is not considered a “bank” because it doesn’t accept deposits and hold customers’ money. However, it offers just about all the other basic services banks do.
Wal-Mart has tried to buy banks in the past, but met with opposition from lawmakers. Not to be deterred, it has been adding financial services to its offerings, as it inches closer to actual bank status.
Wal-Mart’s Money Centers: Financial Services Offered
In the past few years, Wal-Mart has opened over 1,000 Money Centers across the U.S., with plans for hundreds more along with automated kiosks for stores without a Money Center.
The major offerings and fees:
- Check Cashing: Payroll, tax, government and Wal-Mart-issued MoneyGram money orders can be cashed. Fees are up to $3.00 for checks up to and including $1000; $6.00 for checks over $1,000 and up to $5,000.
- Wal-Mart MoneyCard (Prepaid Debit Card): These are reloadable prepaid MasterCards or Visa Cards. Issuance fee is $3.00 at stores and free online. Reloading (money onto card) fee is $3.00, but is free with direct deposits and when checks are cashed. Monthly maintenance fee is $3.00. Cardholders can save 10 cents per gallon on gas through 12/24/11 at participating Murphy USA and Wal-Mart gas stations (5 cent discount in Florida; 3 cent discount in Oklahoma and Minnesota; offer not valid in Alabama).
- Wal-Mart Credit Card: Wal-Mart Credit Card and Wal-Mart Discover Card are available. Neither have an annual fee. Both have an Annual Percentage Rate (APR) for purchases of 22.90%.* Cardholders can earn up to 1% on purchases, save 10 cents per gallon on gas up to 12/24/11 and 5 cents per gallon from 12/25-12/31/11, at participating gas stations. The gas discount is valid in most, but not all, states.
- Money Orders and Wire Transfers: Wal-Mart has relationships with financial institutions to offer these services. Fees are lower than those of many competitors.
* The average national APR for credit cards is currently 14.99%. This should put Wal-Mart’s 22.90% APR in perspective.
How Can Wal-Mart Offer Some Services so Cheaply?
The strategy at play is cross-subsidization. Wal-Mart is likely not concerned with making a profit on its Money Centers unit. In fact, it may be willing to take a loss.
The goal is to get new customers into the stores. Once in, Wal-Mart is counting on some of them shopping and spending some bucks. Additionally, some existing customers are likely to spend more, as they’ll feel flush with money after cashing checks or loading money onto their debit cards.
Are Wal-Mart’s Money Centers Good or Bad for Consumers?
From an individual consumer standpoint, some will likely benefit, and some will likely pay more.
Consumers who are “unbanked” will likely save money if they use just the check cashing services (and perhaps the debit cards). People without bank accounts typically use check-cashing operations to cash checks and fees are quite high. Of course, they’ll save money only if they don’t increase their spending by more than their savings.
However, most people with existing bank accounts who are fed-up with their bank’s high fees would be better off transferring their money to a credit union account rather than ditching banks altogether. The ideal situation is to use checks–not debit cards–and avoid over-drafting and the resultant fees.
Whether or not Wal-Mart benefited to some degree, I’ll end this piece as I started: I’d say Bank Transfer Day was a big success.
