Wal-Mart drops plans to establish banking business


It appears that Wal-Mart Stores, Inc. (NYSE: WMT) has dropped its planned foray into the banking business as of late last Friday. The world's largest retailer has abandoned its bid to establish a banking business after quite a firestorm of controversy over that move.

Some groups and individuals lashed out at Wal-Mart for trying to enter the banking business (and establishing a power beachhead in that area), although Wal-Mart's application to the FDIC was to use banking operations internal to the company, not external to the customer. Wal-Mart wanted to process all those electronic transactions itself instead of outsourcing it, which would have saved the company hundreds of millions based on the volume of transactions it handles.

But Wal-Mart withdrew its application for a bank charter from the FDIC (Federal Deposit Insurance Corporation) on Friday. Instead, Wal-Mart has apparently signed leases with banks that operate branches in hundreds of its stores that will reserve Wal-Mart's right to offer an array of future financial services in its stores. According to the lease terms, Wal-Mart can offer future services including mortgages, consumer loans, home equity loans, investment and insurance products and any other type of service or product that the company might develop.

So when it came down to it, the possible "cover" of using an internal banking institution to process transactions may indeed have been just an entry point to start offering banking services to customers, since that is what Wal-Mart is doing with its banking lease partners as far as the information I've seen so far. Was Wal-Mart's "internal banking plan" just a smokescreen from the start? Your call.

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