Let me make sure I have this right.
The banks that ultimately caused the mortgage loan crisis, the same banks that have been nickel and diming consumers to death since debit and credit cards became more common than cash, and the exact same banks that gladly took taxpayer money to cover their mistakes to avoid becoming insolvent … are now griping because someone else is beating them at a game they said they never wanted to play in the first place?
Sounds about right.
I rarely get up on a soapbox and rant, but sometimes — when an entire industry leaves me little choice — it has to be done. So, here it goes.
The Little Bluebird
Even if you’re just a semi-regular Walmart (NYSE:WMT) shopper, odds are you’ve noticed the retailer’s slow foray into the financial services arena.
It started back in 2007 when Green Dot (NYSE:GDOT) became the backbone of Walmart’s MoneyCard (prepaid debit card) service. It caught on fairly quickly, and continued to grow well.
In fact, it might have caught on a little too well.
Shortly after Green Dot became a major brand name of its own within the prepaid world, Walmart teamed up with American Express (NYSE:AXP) to offer its own prepaid card service, called Bluebird, cutting into Green Dot’s Walmart-driven revenue.
Bluebird isn’t just a relatively handy piece of plastic, either. A card can be set up to accept recurring payroll deposits, used to pay bills (via a smartphone no less), reloaded with cash at most Walmart locations, and used to retrieve cash at ATMs. It is, in effect, an alternative to traditional banks.
And care to guess who’s griping about Walmart being an alternative to traditional banking services?
Yep — the nation’s traditional banks.
Back in December, a cohort of the nation’s best-known banks met with representatives from the Federal Reserve to ask the agency if it would place Walmart’s new “bank-like” services under the government’s oversight.
This group of banks probably knew better than to ask the Fed to deem Walmart’s service a full-blown bank — subject to all appropriate rules and regulations — but this Federal Advisory Council did request that Walmart be subject to a lower tier of financial regulation that would fall under the regulatory arm of the Consumer Financial Protection Bureau.
As is so often the case, however, the major banking names like PNC (NYSE:PNC) and BB&T (NYSE:BBT) aren’t clamoring for more scrutiny over Walmart because they’re concerned about consumers. Instead, the driving force for the complaint is almost certainly the fact that Walmart’s prepaid cards circumvent most of the fees that credit card companies and card issuers were previously collecting for card-based transactions.
In other words, how dare Walmart want to widen its margins and force card issuers or banks to be more competitive!
As the official complaint to the Federal Reserve worded it, the retailer’s prepaid (and all-purpose) card business “appears to permit Walmart, a strong proponent of lower debit interchange rates, to benefit indirectly from the very thing it opposed: unregulated interchange.”
It’s a true and factual statement. But what the Federal Advisory Council complaint failed to add is that unregulated interchange is good for banks and ultimately bad for consumers. Walmart was just looking for a way to protect consumers by protecting itself.
Of all the nerve.
Really? I Mean, Really?!
In the interest of disclosure, I’m no particular fan of Walmart. The service is terrible, its shelves are half-empty, and too many stores are in desperate need of a remodel. But I’ll gladly come to the retailer’s defense on this particular matter and say to the big banks, “Are you freakin’ kidding me?”
For perspective, the customers that Walmart is taking care of with its non-traditional banking services are — for the most part — the exact same customers that banks said they didn’t want in the first place. They tend to keep low account balances and are more prone to overdrafts, yet somehow require more time and energy from bank branch staff. Also, they’re often unprofitable customers, according to many large banks.
Yet, considering the financial services industry collects more than $30 billion in overdraft fees every year in the United States, it’s difficult to believe any bank wouldn’t want to keep these easy-money customers on board.
In that light, kudos to Walmart for recognizing a need and filling it. If the retailer can scrape off a little profit for itself by doing so, then so be it.
Why should banks and credit card companies be the only ones allowed to make money by providing bad service?
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.