WASHINGTON - Wal-Mart Stores Inc.'s financial services strategy took a new direction when the retailer announced late Wednesday that its Mexican unit planned to start a bank and use it to open full-scale branches in some of its 826 stores there.
A company executive said the bank initially would offer savings accounts and basic lines of credit, including credit cards. It eventually plans to offer residential mortgages, other types of loans, and insurance.
The announcement raised renewed fears in the United States about Wal-Mart's intentions with its application to start a Utah industrial loan company, but company officials insisted that the two ventures were not linked, and they reiterated a pledge not to engage in retail branching in the United States.
Raul Arguelles, the vice president of corporate affairs for Wal-Mart de Mexico, known as Walmex, said the bank would tap the underserved market for low-income customers in Mexico.
"Some of them don't have any savings accounts," Mr. Arguelles said in an interview Thursday. "They probably keep their money under their mattresses, and they have very … low access or no access at all to credit. Our initial target would be to try to work with other bank competitors in 'bankarizing' the Mexican population that doesn't have access to financial products and services."
Observers said the bank also could affect Wal-Mart's drive to offer check-cashing, money transfers, and other financial services and products to low-income consumers in the United States.
Bart Narter, an analyst with Celent LLC, said the financial services already offered by Wal-Mart would be better facilitated if the company owned a bank at the other end of its cross-border transactions.
"A large number of their customers have ties to Mexico and are sending money to Mexico," Mr. Narter said. "Even if they didn't have U.S. branches, they already have other financial services that include check-cashing services. If customers send the funds to a Wal-Mart-owned bank in Mexico, that would substantially cut Wal-Mart's international wire transfer costs."
Diane Casey-Landry, the president of America's Community Bankers, said, "The implication of this is truly going to be on the remittance side." The trade group has opposed Wal-Mart's ILC application.
According to Mr. Arguelles, Walmex has worked on its application with the Comision Nacional Bancaria y de Valores, Mexico's chief bank regulator, but the banking license must still be approved by the Ministry of Finance.
The bank would have $25 million of start-up capital, as Mexican regulators require, he said.
Several other Mexican retailers have already chartered banks, though Mr. Arguelles said he is unaware of any U.S. retailers owning Mexican banks. The furniture and appliance retailer Grupo Famsa received a bank charter this week. Another large retailer, Grupo Elektra, chartered Banco Azteca four years ago.
Unlike the United States, where laws prevent commercial companies from owning most bank charters (the industrial loan company charter is an exception), Mexico does not have such restrictions. Mr. Arguelles said he did not expect the issue to come up with the Mexican government.
But opponents of Wal-Mart's ILC application said the Mexican initiative is another sign that the company wants to engage in retail banking here. The announcement came just days after the Federal Deposit Insurance Corp. said it would not approve any ILC applications for at least six months.
Wal-Mart has repeatedly said its ILC, for which it submitted its application in July of last year, would be used only to process credit, check, and debit transactions. Community bankers fear the ILC also would let Wal-Mart open bank branches in its more than 3,000 U.S. stores.
"They've been screaming to the rafters that they have no intention, and never will, of engaging in retail banking operations," said Camden Fine, the president of the Independent Community Bankers of America. "And yet almost on the very day that the FDIC declared the moratorium they apply for a general-purpose banking charter in Mexico. Doesn't that tip everyone off as to what their future plans are in this country?"
Mark J. Tenhunfeld, the director of the American Bankers Association's office of regulatory policy, said the announcement "illustrates why so many wonder if a Wal-Mart ILC is really just a Trojan horse."
The application to open a bank in Mexico "is likely to confirm the fears of many that Wal-Mart has grander designs for its U.S. operations than simply processing checks," Mr. Tenhunfeld said. The Mexican bank "appears to be a foreign version of what Wal-Mart has wanted domestically for several years."
Some observers also wondered if Wal-Mart could use the Mexican bank to enter the United States.
But Gail Lavielle, the chief spokeswoman for the retailer, denied any such plan and said such a move would be illegal. Federal law effectively bars companies with substantial U.S. commercial interests from operating a foreign bank charter in this country.
"These are two very separate things and two very separate markets," Ms. Lavielle said.
"The decision in Mexico to get involved [in banking] is completely independent of anything happening in the United States. It's something that we feel will enhance what we provide to our customers there. We would make that decision regardless of what's going on anywhere else," she said.
Ms. Casey-Landry agreed that there was no "direct link" between the U.S. and Mexican applications. "The markets are separate, and the businesses have to be viewed that way. And it doesn't allow them to do anything in the U.S. except on the remittance side."
Unease about Wal-Mart's ILC application - and about commercial companies' owning banks in general - has come to a head in recent weeks. Reps. Paul Gillmor, R-Ohio, and Barney Frank, D-Mass, introduced legislation last month that would ban commercial companies from owning ILCs and would effectively undo any FDIC decision to approve Wal-Mart's application.
Rep. Paul Gillmor, R-Ohio, said Thursday in an e-mail that Wal-Mart's plan to start a bank in Mexico "is more reason to have strong safeguards" against the mixing of banking and commerce.
"It is clear from past attempts in the United States that Wal-Mart's preferred business plan is to expand into banking," Rep. Gillmor said. "Wal-Mart's decisions abroad certainly have implications at home."
