'In Bed With The Devil?'

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Credit unions that have partnered with Wal-Mart are increasingly finding themselves to be in competition with the very stores in which they are putting branches.

The giant discount retailer credited with heralding the end of "mom-and-pop" grocery, drug and dry goods stores, has made no bones about its desire to offer a full plate of financial services. Now the company, which was already offering credit cards, is expanding into check cashing and even international remittances, potentially creating a far more significant competitive threat than the banks and brokerage firms commonly thought of as CUs ' competition.

"Yes, this is a concern," said Greg Blount, CEO of Tropical Financial CU, which has two in-store branches in Wal-Mart locations in South Florida and has another six slated to open by the first quarter of 2005. "The last organization on earth that I want in my business is Wal-Mart. They are the very last people I want to be competing with."

Yet that isn't changing Tropical's strategy of branching in Wal-Mart Super Stores. "To the extent that we are in bed with the devil...well, the reality is that what we do or don't do certainly doesn't affect Wal-Mart's decision to offer financial services, so we can't let it affect our strategy, either. We have five-year leases with five-year renewables. Are they going to put a branch in right next to ours? There's nothing in our contract that says they can't, but this is still a huge opportunity for us," Blount suggested. "Our expectation is that we will be one of their preferred partners. So whenever they open a super store in our area, we will be given an opportunity to bid on the branch."

The primary reason the $608-million Tropical Financial wanted to get into Wal-Mart Super Stores was its conversion to a community charter; the credit union knew it needed to increase its number of branches and visibility as fast as possible.

To do that, TFCU turned to in-store branching in two regional grocery store chains as well as Wal-Mart Super Stores. "We mapped the locations we wanted to be in, then the question is how do we get in there," he related. "Look at where Wal-Mart puts its Super Stores. They are only going up in prime growth locations, and that's where we need to be. Our in-store branches at Wal-Mart give us the opportunity to put our name in front of thousands of people every day."

Moreover, the in-store branching strategy allowed the CU to increase its branching operations faster and cheaper. "We needed a greater branch footprint in the area," Blount offered. "You can put in three in-store branches for the price of one [stand-alone] service center. We are opening one full-service branch per year, but at the same time, we're opening a total of 12 in-store branches."

Tropical's in-store branches are not just ATMs or kiosks offering select services. They are manned branches offering every single service a member could get at a stand-alone branch. The in-store branches are also part of the CU's business development strategy as it launches member business services this month, he added.

At present, Wal-Mart is not offering check cashing or international remittances at the two stores where Tropical has branches, Blount said, noting that could change in the future. Tropical does offer check cashing, but it is not a core service, and it's not offered in the same way a traditional check casher does, he said. Rather, Tropical Financial offers check cashing with a fee based on a percentage of the amount of the check, instead of a flat fee. The credit union also plans to be offering remittances through IRNet by July 1.

Potential Powerhouse-With Limits

While Wal-Mart has the potential to be a powerful competitor, Filene Research Institute's Bob Hoel suggested credit unions still have the ability to come out on top.

For one thing, even though Wal-Mart is known for its low prices, it's unlikely the discount giant will be beating credit union prices on the financial services it currently offers. "They're offering check cashing for $3 per check, while credit unions usually do this on a percentage basis. And the international remittances are $12.95 at Wal-Mart. Credit unions can and do beat these prices," Hoel commented.

Plus, the market in question is huge, with plenty of room for a variety of providers, he suggested. "Wal-Mart aims at the bottom 40% (in terms of income) of the market. They see that market and they know that market, and it's huge," he offered. "The people in need of these services are not derelicts, they are not totally poverty stricken. They have jobs, or they wouldn't have paychecks to cash, so these people also need loans to buy a car, to buy a home. Wal-Mart doesn't have the ability to convert these people to credit union members or bank customers."

Of course, Filene's research into check-cashing services shows that most people using these services eventually can be migrated to more traditional financial services down the line. And, for as well-known as Wal-Mart is for its low prices, it is not necessarily considered the most convenient retailer in town, and not simply because of the large size of the stores and the huge variety of what is on offer. "They're just not convenient. You typically can't get to a Wal-Mart by bus. You have to be able to drive. They're not really offering a whole lot of convenience, and that is a huge value that credit unions can and do offer."

Even so, credit unions can learn a lot from Wal-Mart.

"First, they really know this market, and most credit unions see this market through middle-class glasses," Hoel advised. "But also, Wal-Mart sees the political and PR value of offering these services. Cashing checks for non-members is good PR and it's good politics. This is an opportunity for credit unions to score some points. The bottom line: credit unions do not need to be frightened by Wal-Mart."

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