WASHINGTON … Wal-Mart Stores Inc. won't be getting its charter but that isn't changing its financial services strategy.
In an interview Friday, Jane Thompson, the president of Wal-Mart Financial Services, explained the company's strategy after withdrawing its application to charter an industrial loan company in Utah. Rather than go direct, it will expand its financial services offerings indirectly … through partners, including banks.
"We are not trying to manufacture the products," Ms. Thompson said. "We just know how to work with partners, comb the value, and figure out how to make it a better value than anybody else's.
"That's like what we do with Tide," she said. "We don't manufacture the Tide. We just sell the Tide."
Without the ILC, Wal-Mart will not be able to process its own debit and credit transactions, but Ms. Thompson said just the threat of getting its own charter has led other banks to cut their prices.
"The savings kept getting smaller, because the big banks kept lowering the fees for us. The business plan was getting a bit weaker," she said. "So we captured a good portion of the savings already."
As the business plan "started looking weaker, we said, 'We have products that would make this bank pale in comparison,' " she said. "It was getting in the way of progress."
Ms. Thompson said Wal-Mart decided to abandon its July 2005 application because it suspected any new offerings would be scrutinized as proof that the retail giant intended to engage in branch banking.
"Every time we launched a new product we feared there would be all kinds of noise," she said. "The bank seemed to be getting in the way of focusing on bigger opportunities."
Ms. Thompson tried to clarify questions raised about its new lease agreements with third-party banks that open branches in its stores. She said any new products and services would be offered exclusively in collaboration with partners.
The precise details of what Wal-Mart is planning remain unclear. Ms. Thompson … who has often emphasized Wal-Mart's interest in working with its bank partners … would not specify the products and services her company is hoping to unveil, saying it had not given a "total green light" to proceed.
Some hints are out there, however. Rep. Paul Gillmor, R-Ohio, released copies last week of new leasing agreements with bank partners that said Wal-Mart reserved the right to offer products including mortgages, home equity lines of credit, consumer loans, and investment products.
Ms. Thompson would not discuss those products, except to say the leasing agreements used boilerplate language intended to capture anything the company might want to offer now or in the future.
"There was nothing really new," she said.
Bankers remain skeptical.
"It leaves lots of questions," said Curtis L. Hage, the chairman and president of the $1 billion-asset Home Federal Bank in Sioux Falls, S.D. "What kind of products, how they would be able to complement the offerings of a bank in place versus compete with those products." If Wal-Mart said, "'This is our store. This is our lease. If you want the lease, you will push our products, not your own,' that could be quite threatening."
Ms. Thompson said that it was not the company's intention to push any product or service on an unwilling partner, but that it wants to try and find a way to reach consumers outside the financial mainstream.
"We are very committed to financial services," she said. "We are very proud of what we are doing. & We talk about our customer and think about what their needs are. & When we bring better value to the marketplace, our partners are still getting a good return."
But Mr. Hage's skepticism is endemic among community bankers, who have made it clear they simply do not trust the retailer.
The ILC application was Wal-Mart's third attempt to enter the business, and many community bankers have accused the company of masking its true intentions to engage in retail branching in its stores. Wal-Mart has consistently said it has no plans to branch.
The Federal Deposit Insurance Corp. has refused to rule on Wal-Mart's application. Instead, it put a six-month moratorium on any ILC approvals while it studied its legal and regulatory authority over them. When that moratorium expired Jan. 31, the FDIC extended it for any commercial applicant until Jan. 31, 2008.
Ms. Thompson said her company was tired of waiting.
FDIC Chariman Sheila Bair said Wal-Mart made a "wise" move, and she echoed its claim that it can be a big player in banking.
"This decision will remove the controversy surrounding their intentions," she said in a press release. "They don't need an ILC to play an important role in expanding access to financial services by partnering with banks and others. We look forward to working with Wal-Mart in meeting the need for low-cost financial services across all populations."
Wal-Mart's application spurred House Financial Services Committee Chairman Barney Frank and Rep. Gillmor to introduce a bill Jan. 29 that would ban commercial companies from owning ILCs. The committee is scheduled to hold a hearing on the bill Thursday. Rep. Frank plans a vote this month.
While Rep. Frank said Friday that he still liked the bill's chances in the House, he acknowledged that Wal-Mart's decision takes some of the pressure off in the Senate, where the bill is opposed by Sen. Robert Bennett of Utah, the No. 2 Republican on the Senate Banking Committee.
"It may have an effect in the Senate," Rep. Frank said in an interview. "The Senate, in my view, would adopt some restrictions, but not as much as ours."
Sen. Bennett said in a press release Friday that he continues to oppose the bill but expects Wal-Mart's withdrawal will spur a more "policy-oriented" discussion.
Senate Banking Committee Chairman Chris Dodd said he still intends to investigate the issue.
Both Rep. Frank and Rep. Gillmor said that despite Wal-Mart's withdrawal, the need for a bill remains.
"There are other firms that have applications, specifically Home Depot, that raise serious questions," Rep. Gillmor said in an interview. "This wasn't about Wal-Mart. That was just one example. The issue here is the principle of maintaining the separation of commerce and banking."
Many industry representatives have shifted their sights to Home Depot Inc., which applied last year to buy a Utah ILC, as the new poster child for the mixing of banking and commerce.
Wal-Mart's withdrawal "takes some of the fire out of it, but not all of it," said Diane Casey-Landry, the president of America's Community Bankers. "You still have Home Depot."
Camden R. Fine, the president of the Independent Community Bankers of America, said, "While Wal-Mart has pulled its application due to heat generated by community bankers, there are other commercial firms that still have pending applications. That argues an ILC bill still needs to be passed."
Home Depot said it had no intention of withdrawing its application.
"The Home Depot remains committed to its plan to acquire EnerBank USA, an existing industrial loan company," a spokesman said Friday.
