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The Wal-Mart Weekly: Meet Wal-Mart's new debit card. Now it's competing head-on with banks

Posted Apr 5th 2008 3:40PM by Brian WhiteBrian White RSS Feed
Filed under: Competitive strategy, Wal-Mart (WMT), Columns

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Welcome to the 55th installment of The Wal-Mart Weekly, a column dedicated to bringing you insight, wit, facts, results, opinions, and just a bit of everything else when it comes down to a very hot topic these days: Wal-Mart.

In this week's Wal-Mart Weekly, I'll be looking at the entry (although indirect) of Wal-Mart Stores Inc. (NYSE: WMT) into the consumer banking industry. While it may seem a stretch to think that Wal-Mart's new debit card program is anything but a way to help consumers, it could be positioning the retailer as a new banking partner for many consumers as well as adding handsomely to the retailer's bottom line.

You have to make money to spend money

Wal-Mart recently discontinued its Wal-Mart Debit/ATM card, but has now replaced it with a newer "debit card".
What's the difference, you ask? Let's break it down a bit. First, Wal-Mart's previous debit card was just that: an in-store debit card to prod more consumers into spending money in the store, regardless of credit history, credit card access, or checking account access. It's no secret that millions of U.S. shoppers have credit issues and either are overloaded on credit debt in the first place or can't receive a credit card at all due to past financial history.

Of course -- like any good retailer -- Wal-Mart does not want to lose any business. Therefore, providing an alternative way for lower-income shoppers and those with spotty credit to continue bringing business to the checkout line is a huge priority. Wal-Mart's motto is currently "Save money. Live better." Although the world's largest retailer likes to talk about moving away from "low prices" as its main competitive advantage, that may never happen. Wal-Mart's brand identity revolves around the low price image, and it knows it.

But when the retailer decided to do away with its in-store ATM card, you can bet there was a very decent replacement coming up. It's here -- and it's more than an in-store prepaid debit card. Wal-Mart's new "MoneyCard" is actually a refillable debit card provided for use on the "Green Dot" network. Of course, Wal-Mart's MoneyCard can only be used at Wal-Mart. The guise I see is this: Wal-Mart wants those who don't have credit cards or bank accounts to "load" their Wal-Mart MoneyCards directly from their paychecks. In fact, if you cash your payroll check at Wal-Mart, you can load any portion (even all) of it directly to your Wal-Mart MoneyCard.

The Wal-Mart Bank has arrived

This time, though, it's different. This new Wal-Mart MoneyCard is like a standard debit card by any issuing bank in the U.S. For many, a debit card pulls funds out of a standard checking account (backed by real money in the bank, not a credit loan). In fact, I would go as far to say that the paper check has been almost displaced entirely by the debit card for millions of U.S. consumers, based on the straw poll I took this week among people I know. Imagine this: you have no bank account, but you have direct deposit from your employer. All of your paycheck funds go directly to your Wal-Mart MoneyCard. You then use that money card for everything:

  • Paying bills on the web
  • Internet shopping
  • Paying for gas at the pump

You basically have a bank account without the bank. Since credit and debit cards are universally accepted almost everywhere worldwide, you can buy anything at anytime at any place with a "loaded" Wal-Mart MoneyCard. Does this sound like Wal-Mart has entered the banking business to you? In a clever, indirect way, yes. Sure, this may not fit the profile of a standard bank account, and your funds aren't insured by the FDIC since this is not a bank account. Still, getting customers to load their paychecks onto a debit card that can be used anywhere for anything is powerful. The most powerful thing of all: the card is branded Wal-Mart. Think that's not powerful? Take a peek at a marketing textbook.

As a MoneyCard holder, Wal-Mart has you both ways

And don't think those fees are something Wal-Mart won't be collecting -- it does. Although Wal-Mart's MoneyCard fees are competitive, the fees are still there. The retailer has an initial activation fee of $8.94 and a monthly maintenance fee of $4.94, which goes right along with its store-level retail pricing (ever see a price in Wal-Mart end in $.99?). There is also a "reload" fee of $4.64, but that is canceled if you set up your Wal-Mart MoneyCard as a recipient of your paycheck direct deposit.

Further, that $5 "maintenance" fee is waived if the card user reloads $1,000 a month or more to the MoneyCard. ATM withdrawals also have a fee, but are free if you wander into a Wal-Mart location and get cash from a register using your card. Again, does this sound like a pseudo-banking process? Like or not, Wal-Mart has a bank operation, even if it does not fall under the definition of a regular bank. The processes, fees, and customer marketing and usage targeting alone makes the Wal-Mart MoneyCard a banking operation -- at least from the eyes of a customer.

Wal-Mart's array of fees is not unlike a check-cashing service or any other banking operation where standard checking accounts are the product of the day. However, the retailer's fees are in each case very competitive or a touch cheaper than competitive services. So, not only is Wal-Mart trying to keep its brand in front of as many U.S. consumers as possible, it's giving breaks to standard banking fees at every corner with its newer MoneyCard and, in a way, is now beginning to compete head-on with the standard bank and the standard checking account scenario where millions of U.S. consumers already have debit cards at their disposal.

After all, the prepaid cellular service industry is huge due to the lack of credit or unwillingness of many to be unable to qualify for credit-based services. This is simply the application of a prepaid debit card scenario from the gates of the world's largest retailer. Wal-Mart wants you to use the card in its stores (and there are incentives for that at every turn). If you use its MoneyCard outside of Wal-Mart's universe, there will be fees on those actions that undercut the competition. So, Wal-Mart wins both ways, which of course is its purpose. Keep your friends close (regular Wal-Mart shoppers) and your enemies closer (MoneyCard holders who shop more outside of Wal-Mart).

Although Wal-Mart was not officially sanctioned as a bank in 2007, it sure has an operation here that emulates one strong aspect of most banks -- racking up as many transactions as possible. And Wal-Mart thought profit was only in retail product sales. Like any growing company knows, any action that generates microsize fees or payments of any kind is coming up fast as a real profit generator. Or, no big deal if you have a keen eye for cash outlay -- just shop at Wal-Mart instead and save those fees.

Join me right here this time next week for another edition of The Wal-Mart Weekly. Until then, have a great week.


Update, 4-10-08: Wal-Mart's newest debit card offering launched in July 2007, and its previous card was discountinued in February 2007.

Tags: debit card, featured, Money Card, MoneyCard, wal-mart, Wal-Mart MoneyCard, wal-mart stores, wal-mart weekly, Wal-martStores, Wal-martWeekly, WMT

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