The Big Box Bank: Wal-Mart Makes a Play for the Underbanked

As you approach the checkout counter, you grab a stick of lip balm because the display reminds you you’ve just run out. You eye the rows of candy — man, I could really use some chocolate — so you toss one on the conveyor belt. Oh, one more thing: You’d like to open a debit card.

Just like that, you can run all your errands in once place: Wal-Mart.

More people work for Wal-Mart than live in Houston, the fourth-largest city in the U.S. It’s the largest company in the country. Suffice it to say that Wal-Mart, which reported $476.3 billion in revenue in 2014, provides many services for the American consumer.

Each store offers different services — some have hair salons, restaurants, optometrists or photo studios — and your local Wal-Mart might include a MoneyCenter, where you can get a variety of financial services, even a checking account. Depending on where you shop, you can pay your bills, cash checks and pay for your groceries, all in one transaction.

At a Wal-Mart Express in Chicago, the price list for MoneyCenter products hangs adjacent to the cigarette display. It’s odd to think you might ask the cashier to throw in a prepaid debit card with your Us Weekly, but that’s certainly how it’s designed. If you’re more of a self-checkout person, there’s the MoneyCenter Express terminal: Conveniently located steps away from the Redbox stand, this kiosk spits out prepaid debit cards like a vending machine.

The most recent addition to Wal-Mart’s suite of financial services, announced Jan. 20, is Wal-Mart Direct2Cash, which allows customers to pick up their tax refund — in cash — from Wal-Mart. Taxpayers going through one of the 25,000 tax preparation locations using Direct2Cash software can choose to receive their cash refunds in Wal-Mart stores for a maximum fee of $7. This may be cheaper than paying to deposit a paper check (if you don’t have a bank account) or requesting a refund through a prepaid debit card, which often involves a handful of fees.

The big box retailer’s foray into financial services doesn’t stop there, however. You can get credit cards, prepaid debit cards, money transfers, check printing, check cashing, tax preparation and auto insurance through Wal-Mart’s MoneyCenter. You can even purchase a GoBank mobile checking account “starter kit” at Wal-Mart, an FDIC-insured product from GreenDot Bank. You can quite literally throw a checking account in your shopping cart. (Anyone can sign up for a GoBank mobile checking account online, but Wal-Mart is the only retailer with the starter kits — they cost $2.95.)

Wal-Mart, however, isn’t a bank, and according to a company spokeswoman, it doesn’t want to be one. Still, you could function pretty well in our diverse economy using just the financial services offered by the mega-retailer. Whether or not that’s a good idea is a controversial topic.

The All-in-One Approach

Wal-Mart’s public stance on offering financial services to its customers is very much aligned with everything else it does: We make it easy to save money, the company says.

“We’re on a mission to use our size and scale to solve problems for our customers,” said Molly Blakeman, a Wal-Mart spokeswoman. “We’re taking products that are often costly and confusing and making them simple and affordable.”

It’s a nice idea, and there’s plenty of truth to it. Of course, it also can’t hurt to have customers handling their finances in the same place they shop. Before we dive into the implications of getting your tax refund within the same walls that contain millions of dollars’ worth of consumer goods, let’s focus on that first part: cheap, easy access to financial tools.

In 2013, nearly 9.6 million American households (7.7%) didn’t have access to basic financial services — they don’t have an account at an FDIC-insured financial institution — either because of where they live or as a result of past financial troubles, according to the 2014 FDIC report on unbanked and underbanked Americans. About 24.8 million households were considered underbanked, meaning they have an account but use alternative financial services, like payday loans, check cashers, prepaid debit cards and auto title loans. Together, the unbanked and underbanked make up 27.7% of U.S. households. Banking status is unknown for about 5% of households.

A variety of enterprises have attempted to serve this population, many of which have a reputation for offering expensive, opaque and sometimes predatory products. For the last several months, the Consumer Financial Protection Bureau has accepted consumer complaints about payday lenders and the prepaid debit card industry as part of its effort to weed out bad apples that are preying on underbanked Americans.

For the underbanked, Wal-Mart lives up to its ambition: Its products are easy to access for many consumers, while carrying fees often lower than those of competitors.

“I’ve watched them with great fascination and, frankly, admiration for their willingness to experiment in this space,” said Mark Pinsky, president and CEO of Opportunity Finance Network, a group of community development financial institutions (CDFIs) that focus on serving low-income, low-wealth and other disadvantaged consumers. “They are making it simple.”

For example: To cash a check at Wal-Mart, the maximum fee is $3 for a check up to $1,000, and $6 for a check of greater value. Other check-cashers, whether they be banks or not, have varying fee structures, some of which carry a flat fee or take a percentage of the check’s value. Chase, the largest bank in the U.S., charges $6 to non-customers cashing a check. Fifth Third charges non-customers $4 for checks less than $400 and 1% for checks of greater value. PNC charges non-customers $10 and won’t cash anything larger than $1,000. At some banks, it’s free to cash a check, whether you do business there or not.

Still, financial experts aren’t hailing Wal-Mart as the cure-all for the millions of consumers stuck beyond the reach of conventional banks.

It’s a Retailer, Not a Bank

Even if unbanked consumers don’t go to Wal-Mart to manage their finances, they’re probably using products the retailer offers, like prepaid debit cards, which can be more expensive than bank-issued credit and debit cards, and don’t carry the same protections. That problem isn’t isolated to Wal-Mart products, so if what the retailer offers is a more affordable version of these common tools, why not just go to Wal-Mart and benefit from the convenience?

Perhaps the biggest difference between Wal-Mart and traditional financial institutions is the most obvious: It’s a retailer. It sells things. How do you help people manage their money when your goal is to get them to spend it under your roof?

“Outside of a traditional bank, there are a number of alternative services, like those offered at Wal-Mart, that can be good options for people,” says Lauren Saunders, associate director for the National Consumer Law Center. “Frankly, the biggest danger is just the temptation to spend your money at Wal-Mart.”

Sure, the phrase “Save Money” makes up half the retailer’s slogan, but the Wal-Mart MoneyCenter offers no such mechanism for personal savings.

“I hope that somewhere they’re doing a beta test when you offer people a savings product alongside the refund,” Pinsky says, referencing Wal-Mart’s Direct2Cash product.

Two products offered by Wal-Mart — BlueBird (through American Express) and GoBank — allow users to rope off funds using “SetAside” and “Money Vault” features, respectively. As a way to work toward savings goals, you can designate some of your money as off-limits, though you can still transfer it back and forth to the spending portion of your account. Unlike most savings accounts, there aren’t limits on how often you can transfer funds. The potential to save is there, but it’s not a centerpiece of the Wal-Mart MoneyCenter.

For consumer advocates, this inherent conflict of interest trumps all. No matter the convenience factor, a place where you both manage and spend your money sends up red flags, as far as your finances are concerned.

That’s not to say Wal-Mart isn’t a valid resource for people with little or no access to traditional banking services. Rather, it highlights the need for more sustainable solutions. That’s something researchers and experts in the field are well aware of, and a great deal of work is going into developing potential solutions for this population.

In the meantime, there’s always Wal-Mart.

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Image: iStock

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