If bankers thought that they had won a great victory when Wal-Mart withdrew its application to charter an FDIC-insured industrial bank, they now know better. Wal-Mart on June 20 revealed its intention to compete with banks for some of their best retail business. In partnership with other organizations, Wal-Mart will offer an array of financial services without bothering to obtain a banking charter of any type.

MoneyCard

First, the giant retailer will offer the Wal-Mart MoneyCard, a reloadable prepaid Visa debit card that Wal-Mart will issue in partnership with GE Money and Green Dot. Wal-Mart says most of its 4,000 locations will offer the MoneyCard by the end of this year. The card can be used in stores, at the gas pump, at ATMs, wherever Visa cards are accepted.

The Wal-Mart MoneyCard will not be tied to a deposit account, and issuance will require no credit check. Customers cannot spend more than they have placed on the card, so there will be no overdraft fees. Wal-Mart will charge $8.94 to issue the card, and will levy monthly maintenance charges of $4.94. Maintenance charges will be waived if the customer puts $1,000 or more on the card each month. There is a $4.64 fee for reloading the card, unless the reloading is done by direct deposit or by check at a Wal-Mart store.

Wal-Mart says the prepaid Visa card will be welcomed by the 20 percent of its regular customers who do not have bank accounts — about 36 million consumers. “Many of our customers are paying too much, traveling too far and not being well served,” said Jane Thompson, head of Wal-Mart financial services. “But they still need to pay their bills, cash their checks and transfer money. We’re offering them a safe place and a card to help them manage their money. We’ve seen firsthand what a difference that can make. It changes lives.”

Wal-Mart claims that customers who use its MoneyCard will save as much as $40 per month in fees for check cashing and other financial services, besides enjoying the convenience of conducting their financial transactions at their favorite department store anytime the store is open.

MoneyCenters

In addition, Wal-Mart also intends to vastly expand the number and capabilities of its existing Wal-Mart MoneyCenters. The 225 Wal-Mart stores with MoneyCenters will expand to 450 by the end of this year and to 1,000 by the end of 2008. Over time, the products and services offered by these MoneyCenters will expand to include what the store calls “many different products and services.” While the retailer’s disclosures are vague at best, analysts assume the in-store financial centers will concentrate on mortgages and various types of consumer lending.

Wal-Mart claims its existing MoneyCenter clients save as much as 25 to 50 percent over other providers’ fees. In addition, the retailer claims, its centers offer one-stop shopping with extended hours, seven days a week.

Banks will no doubt continue their fight to keep commercial firms like Wal-Mart from acquiring bank charters. Congress may support the industry by closing the industrial bank loophole. However, with Wal-Mart (and others yet to come) offering a full array of banking services from behind store counters, what difference will the absence of a banking charter make? If Wal-Mart has its way, bank charters may turn out to be little more than badges of obsolescence.

Others Oppose Wal-Mart

Bankers are not the only interests to be damaged by Wal-Mart’s expansion into financial services. John Taylor, president of the National Community Reinvestment Coalition, also views Wal-Mart’s expansion in negative terms. “I think it’s just bad news all ways around for Wal-Mart to get into the banking business, even if it’s just the foot-in-the-door approach they’re taking now,” he said. No doubt the community reinvestment activist was realizing there is no Community Reinvestment Act requirement for entities without a banking charter.

As Camden Fine, president of the Independent Community Bankers of America put it, “Someone always pays. There’s no free lunch, and that’s what people have to understand.”