5 Ways Walmart Will Impact Your Credit Union

September 25, 2014 at 9:06 am Leave a comment

In July of 2005, Walmart filed an application to open an Industrial Loan Bank in Utah. The Utah bank regulator was flooded with 3,500 comment letters describing Walmart’s application as a sign of the Apocalypse. One commenter described a Walmart bank as a “dangerous and unprecedented concentration of economic power.” Others fretted that Walmart would drive independent financial institutions out of business by utilizing its network of stores as low cost bank branches.

Fast Forward to September 24, 2014. Walmart announced that it is teaming up with on-line GoBank started by the California-based tech company Green Dot. It will start offering off-the shelf, low-cost checking accounts by the end of October to anyone 18 years of age or older with an ID. The mobile account startup kit will be available at Walmart stores nationwide. Customers will have access to 42,000 ATMS. How is this going to impact your credit union? Let me count the ways.

  1. Say goodbye to even more non-interest income.  With GoBank’s mobile banking platform, Walmart and its banking partner clearly feel they can attract enough customers to make up in volume what they lose in potential fee income.  As Steve Streit, Green Dot’s CEO and founder explained yesterday: “Many so-called ‘free’ checking accounts aren’t really free because they have high overdraft fees. In fact, an independent study by Bretton Woods estimates that consumers pay approximately $218 – $314 per year for a basic checking account.” He further noted: “No other checking account makes it this easy and affordable to manage your everyday finances.” Of course, there is some fine print being glossed over here. There is an $8.95 monthly fee that is waived in any month with qualifying direct deposits totaling $500 or more. Other fees include a 3 percent foreign transaction fee and out-of-network ATM fees (typically $2.50 for an out-of-network ATM plus any fee the ATM owner may assess).
  2. Walmart has the potential to challenge traditional banking on two fronts. If you believe that people still want branches to do their banking then you have to fear Walmart. You don’t have to be Nostradamus to see that one day all those bank branches that Walmart has been gracious enough to lease space to in their stores are going to gradually become GoBank branches. If you believe, as I do, that banking is going virtual, then by teaming up with GreenDot, WalMart has a mobile platform than can compete with anyone’s as I explained in a previous blog.
  3. Just how are you going to attract those young people who are indifferent to walking into a credit union or the person of modest means who is intimidated about doing so? These are people who were increasingly relying on prepaid cards and mobile banking even before Walmart’s announcement.  Now, they have the option of getting a full-fledged FDIC insured bank account by walking into a store. No one is intimidated by Walmart and the store has a reputation for great deals and fair prices. And, don’t fool yourself, Walmart is starting out just offering a basic banking account but it will be offering car loans and mortgages in the not too distant future.
  4. Walmart and Apple are now your two biggest competitors. How do you offer traditional banking services in an industry where the appeal of the new guys is that they are non-traditional bankers? I don’t know, but at the very least, if you still don’t have a mobile platform you better get one soon or merge with a credit union that does.
  5. Back in 2005 many smaller financial institutions correctly feared that a Walmart bank could put them out of business. Maybe I’m missing something, but, if anything, those fears are even more justified today. Only credit unions with a very unique niche or large institutions will have the economy of scale to compete against big volume consumer banking. So, it is Walmart’s entry into retail banking, coming on the heels of Apple Pay, that makes this one of the most transformative periods in retail banking credit unions have ever witnessed.

Scam Alert

The IRS sent out an alert yesterday warning financial institutions against a scam that makes me think yet again that some compliance officers have gone over to the dark side. Fraudsters, posing as IRS employees, are calling up financial institutions complying with the Foreign Account Tax Compliance Act (FATCA) and requesting account information. As the IRS explains:

“The IRS does not require financial institutions to provide specific account holder identity information or financial account information over the phone or by fax or email. Further, the IRS does not solicit FATCA registration passwords or similar confidential account access information.”

Down So Long That It Looks Like Up To Me Category

In a press release “The U.S. Department of Education announced today that the official three-year federal student loan cohort default rate has declined to 13.7 percent for students who entered repayment in FY 2011. That drop was across all sectors of higher education – public, private and for-profit institutions – even though an additional 650,000 students entered repayment in FY 2011 compared to FY 2010.”

That default rate for 2010 was 14.7.

The Good News Is Good News Category

New home sales hit their highest level since August 2008.

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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