Wal-Mart Stores sought last week to pacify growing resistance to its pending application for a bank charter by insisting it has no intention of offering retail financial services and will use the proposed Wal-Mart Bank solely to process the $2.6-billion in transactions that flow through its stores every month.
But representatives of the nation's banks expressed doubts at the reassurances during public hearings before the FDIC, citing past efforts by the retail giant to develop its own branches and in-store self-service financial network like ATMs and kiosks.
"Wal-Mart has attempted unsuccessfully on more than one occasion since 1999 to enter the full-service banking business," said Arthur Johnson, CEO of United Bank of Michigan, in Grand Rapids, who was testifying on behalf of the American Bankers Association. "In addition to its attempts to obtain a bank charter, Wal-Mart has begun testing full-service Wal-Mart money centers for using stored-value cards, debit cards and ATMs. It is also rolling out its Money Center Express machines, which will permit customers to use credit or debit cards in a wide variety of ways."
The company currently holds an Industrial Loan Company charter in Utah but requires federal deposit insurance from the FDIC to launch the bank.
The Wal-Mart bank controversy has major implications for credit unions, primarily because dozens of credit unions lease space in Wal-Mart stores for branches, including America First FCU, Landmark CU, Fairwinds CU, UnitedOne CU and ARH CU.
But just as important is the opposition the non-bank's application for an ILC has raised, as the banking lobby has indicated it will also oppose pending bids by two credit union groups for ILC charters to create credit card banks for credit unions.
Officials at CUNA Mutual Group said last week they have still not resubmitted their application to the FDIC for an ILC called Union Financial Services, after pulling it last December because of questions over its ownership structure. A company spokesman said they are still working to resolve the ownership issue between the partners CMG, Card Services for CUs, Certegy and Corporate One FCU, and plan to resubmit the application to the FDIC.
Wescom CU, which has acquired the ILC charter of Silvergate Capital Corp., in San Diego to start its own credit card bank, has yet to submit its application to the FDIC.
During last week's hearings, Jane Thompson, president of Wal-Mart Financial Services, acknowledged the company has sought approval for branch banking in the past but has changed strategies. The retail giant now fully embraces the contracts it has with more than 300 banks and credit unions that lease in-store branches in 1,150 Wal-Mart stores, instead, she said. In fact, Wal-Mart plans to lease branches in another 250 of its stores by 2009, most of them long-term commitments of up to 15 years, she said. "You will not see a Wal-Mart Bank in a Wal-Mart store," said Thompson.
Thompson, who was appearing with representatives of more than two dozen groups at the first of an unprecedented three days of hearings the FDIC is holding on the controversial bank, said the retail giant expects that if its bank application is approved it will include conditions barring branching.
But banking groups and other opponents insisted that wasn't enough to prevent Wal-Mart from changing its plans down the road and deciding to develop in-store branches. "Beware of this modern-day Trojan horse," said Terry Jorde, president of CountryBank USA of Cando, N.D., who was representing the Independent Community Banks of America. "No one believes that Wal-Mart will stick to its business plan and stay out of retail banking."
Goal Is To Save Millions
The nation's biggest retailer seeks the bank charter to be able to process its own transactions, primarily credit card and debit card sales and the conversion of checks to electronic images for transfer, explained Thompson. This will allow Wal-Mart to bypass a required sponsor bank to access the payments system and to save millions of dollars a year on processing fees.
The Wal-Mart Bank, because it has the sole customer of the parent company, will pose little risk to the payments system, insisted Thompson. In addition, Wal-Mart expects the bank to have implemented Visa and MasterCard International's Payment Card Industry (PCI) standards for data security protection before it starts operations, making it the first bank to be able to assure that all of its merchant customers comply with PCI, she said.
The Wal-Mart executive's testimony was followed by a number of opponents, including Rep. Stephanie Tubbs-Jones (D-OH), who said more than 100 lawmakers share her concerns about the risks of a Wal-Mart Bank. Among those risks, said the congresswoman, are the threat to the federal deposit insurance system by potential financial troubles at Wal-Mart; the threat to the payments system by any disruption in processing the billions of dollars in transactions at Wal-Mart Bank, and the possibility that Wal-Mart could use its market muscle to force suppliers or other business partners to have their transactions processed by Wal-Mart Bank.
In addition, she doubted the company's assurances on developing a branch operation. "Nothing, once this bank application is approved, is to prevent them from moving into branching," said Tubbs-Jones.
Among the others testifying against the Wal-Mart Bank were several unions and consumer groups, including the AFL-CIO, which has criticized Wal-Mart's labor practices in the past; the United Food and Commercial Workers International Union, the Consumer Federation of America, the National Community Reinvestment Coalition, the National Grocers Association, and the National Association of Convenience Stores. Several of the groups staged a picket outside the hearing.
Several groups testified in favor of the Wal-Mart proposal, including American Financial Services Association, Working Families for Wal-Mart, the National Center for Missing & Exploited Children, a beneficiary of Wal-Mart financing.
The FDIC held two days of hearings on the application last week and has scheduled a third day of hearings for April 25 in Overland Park, Kansas.
