A prepaid card venture between Wal-Mart Stores Inc. and General Electric Co. could give the companies a leg up on money transmitters, check-cashing outlets, and other financial services companies catering to the underbanked, an analyst said.
The nation's largest retailer's "foray into prepaid cards could have longer-term negative implications for MoneyGram (its existing money transfer partner) and the U.S. to Mexico money transfer space in general," Tien-Tsin Huang, an analyst with JPMorgan Securities Inc., wrote in a research note published Wednesday. "We also see the cards as a substitutional threat for consumer to business bill payments offered by Western Union and CheckFree."
Wal-Mart, which operates more than 1,600 stores in Mexico and Latin America, could launch its own remittance service to those places by taking advantage of the Visa network, he wrote.
Financial Times reported Wednesday that Wal-Mart would partner with GE's consumer finance unit and Visa U.S.A. Inc. to offer a reloadable debit card for the country's estimated 80 million underbanked consumers. GE already issues a private-label credit card for Wal-Mart that runs on Discover's network.
Consumers would be able to load up to $3,000 of payroll or other funds on the Wal-Mart Money Card. The card could be loaded at Wal-Mart stores or through direct deposit.
More details about a pilot test for the card could be announced this month, the newspaper said.
Wal-Mart, Western Union Co., and CheckFree Corp. either did not return calls or had no comment at press time. A spokesman for the GE unit would not discuss the partnership, except to say his company planned to make an announcement with Wal-Mart in the next few weeks. A Visa spokeswoman would only confirm that the card would be usable wherever Visa is accepted.
A spokeswoman for MoneyGram International Inc., which processes money orders for Wal-Mart, called the retailer's stronger emphasis on services for the underbanked "a positive" for her company.
According to Mr. Huang, First Data Corp., GE Money's current processor, is likely to win the processing business for the new card.
Robert Dodd, an analyst with Regions Financial Corp.'s Morgan Keegan & Co., agreed that the Wal-Mart card would be a boon for processors, and that it could hurt transmitters like Western Union, as well as check cashers. "If you go in [to a store] and pay cash, the processor doesn't make any money," he said. "If Wal-Mart is successful in getting these prepaid cards into the unbanked market … then the processors start benefiting."
After its annual shareholder meeting Friday, Wal-Mart — which withdrew a controversial bid for a bank charter in March — said it planned to install more in-store kiosks dedicated to processing money transfers and cashing checks. (It currently has 170 of the kiosks at its 4,000-plus U.S. locations.) "We are really focused on serving that customer who is not getting service today in the financial arenas. We're going to continue to grow in that arena," John Menzer, Wal-Mart's vice chairman, told analysts. "I think we'll also have more products to come."
Lee Scott, Wal-Mart's chief executive, said at the analyst meeting that he is encouraging Jane Thompson, the president of Wal-Mart Financial Services, to "accelerate the development" of "those things where we can add value in the customer's life through Wal-Mart's financial services... It does not appear that we will have a bank any time in the near future, but there are lots of ways to serve our customers' needs."
