It’s time to go after Wal-Mart, everyone’s favorite corporate scapegoat … even if it’s the customer who gets ahead. Wal-Mart wants to open a limited-purpose bank in Utah from where it can serve the entire country, but it must first get approval from the Federal Deposit Insurance Agency (FDIC) and Utah regulators. The retailer has said it simply wants to process its own credit and debit transactions, but opponents fear it is positioning itself to expand further into retail banking. Wal-Mart says it would save money if it could handle its own debit, credit and electronic check transactions through an internal bank. It says it would not offer payment processing to other retailers, nor would it open bank branches to the public. Opponents fear that Wal-Mart will eventually open bank branches, forcing small community banks into bankruptcy.
When Jack Pansegrau in Palm Springs, California, learned of the controversy, he sided with Wal-Mart. Perhaps the company that has saved Americans “billions and billions” could lower ATM fees and other charges, he wrote. Those letters now number nearly 2,000, the largest response to a bank application at the FDIC where the issue is so controversial that the FDIC has taken the unusual step of holding public hearings. Unfortunately, however, these hearings can become more of a sideshow and the issue is likely to be more of a referendum on Wal-Mart, the store, than Wal-Mart, the potential banker.
The Federal Reserve has raised concerns that commercial owners of industrial banks avoid a level of federal banking supervision and this has led opponents to question whether that lack of comprehensive supervision could allow potential problems within the company to spill over into. the bank’s business and disrupt the payment system. . Other less oblique opposition has focused on the historic separation of banking and commerce in the US.
Interestingly, Wal-Mart is not the only commercial company looking to establish an industrial loan company. Its rival, Target, succeeded in its industrial bank application. GM and GE also have industrial banks. But Wal-Mart comes along, and suddenly some people decide that the regulatory procedure is inappropriate. Some states are even threatening preventive legislative action against Wal-Mart’s offer, but hopefully New Hampshire won’t follow suit.
By quickly determining which way the wind is blowing, politicians and opponents are intervening. Sen. Hillary Clinton, who curiously once served on Wal-Mart’s board, now says she has “serious reservations” about the bank’s request. His “new” position is shared by several large financial institutions in New York, which see these banks as potential sources of competition. Alan Greenspan has said that the application process has the “potential … to further undermine the policies that Congress has put in place to govern the banking system.” His successor, Ben Bernanke, agrees. Several lawmakers, including anti-business Congressman Barney Frank (D-MA) and Paul Gillmor (R-OH) argue that giving Wal-Mart banking status, given the retailer’s “massive reach and international deals,” would involve too many risks. In an example of logic gone terribly wrong, Steve Verdier, senior vice president at Independent Community Bankers of America, believes that Wal-Mart’s bank could wreak havoc on the economy even without taking fair competition issues into account. “Just think if Enron had opened a bank,” he says. But he admits that while other principles are involved, his group opposes Wal-Mart’s charter primarily “because it’s Wal-Mart.”
Many others, however, say that low bank prices are the way to go. “Wal-Mart sees banking as an opportunity to offer the customer a better deal,” says Howard Davidowitz, president of a New York retail consulting and investment banking firm. “That’s what Wal-Mart is all about. That’s why they have demolished the food and toy industries. If it’s better for customers, then it should be that way.” Even Robert B. Reich, the Clinton administration’s liberal-minded labor secretary, says that while Wal-Mart is “not my favorite employer,” he favors a Wal-Mart bank, for the very progressive reason that it would improve. the life of ordinary people. All the opposition to the plan, he added, “is a very good indication that consumers would be helped if Wal-Mart could somehow get in.”
It’s interesting to imagine what would happen if Wal-Mart applied its legendary price-cutting and other business techniques to banking. Clearly, it could do things that banks don’t (or won’t) … like give customers faster access to money and pay more attention to low-income families so they can pay lower fees for cashing checks. High interest rates on credit cards are likely to decline as well. The retailer could bring to the bank the same cost-cutting strategy that made it prevail over less efficient competitors and become the preferred retail outlet in the United States. Given their technological and business savvy, financial capital, instant geographic reach, and financial literacy, small and midsize banks have good reason to be paranoid. Even the big guys should be looking over their shoulders. After all, as grocers, toy retailers, and jewelers have learned, complacency in the face of Wal-Mart can be competitively dangerous, if not fatal, and that is what a free capitalist economy is all about.
As presented in a previous column, Wal-Mart runs its business and makes its profits through the voluntary decisions of its customers to buy there. In this context, a Wal-Mart “bank” would operate in the same way. No one would be forced to use their services. Wal-Mart’s opponents (be they politicians, competitors, unions, who time and time again fail to organize their employees or the government) certainly have a right to argue about which line of business Wal-Mart can or cannot go to. within. But as long as it doesn’t violate any laws, Wal-Mart should have the right to operate in a free capitalist economy in any way it sees fit. Hopefully, he will become a force in banking …………. and that could be good news for all of us.
“A lot of people want the government to protect the consumer. A much more pressing problem is to protect the consumer from the government.” Milton friedman