Green Dot, Walmart Have Opened the Floodgates (GDOT, WMT)

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In retrospect, the fact that Walmart (WMT) ventured all the way into the banking arena can’t come as a real surprise. The world’s largest retailer has effectively been a bank since 2012, even if it never technically became one.

green dot gdot stockIts recently announced partnership with Green Dot (GDOT) — an actual, regulated bank — only added checking accounts to the list of financial services Walmart offers; everything else pretty much stayed the same.

Wednesday’s announcement, however, has owners of GDOT and WMT stock asking two key questions:

  1. Why is Walmart even bothering?
  2. Now that Walmart has essentially become a “real” bank under the umbrella of the Green Dot banking charter, what other companies are likely to cross the banking line that had thus far not been threatened?

Meet GoBank

Green Dot StockShareholders of WMT stock can’t exactly be displeased with the news. But anyone who owned GDOT prior to Wednesday has to be thrilled with the nearly 25% romp that unfurled for Green Dot stock after Walmart announced it would be using the company to facilitate its new mobile-based checking accounts.

The so-called GoBank checking accounts work like any other checking account … well, because they are. This includes FDIC protection. And like any other bank, GoBank checking accounts can be linked to a debit card that can be used to withdraw cash at more than 40,000 ATMs.

In some ways, though, GoBank might be a better deal for smaller bank customers or consumers who don’t have a bank account to begin with. The monthly fees are lower, there are no penalties for overdrafts, there’s no account minimum, and maintenance fees may be waived altogether if the customer schedules ongoing monthly deposits of $500 or more. Money transfers to other GoBank customers are also free.

The numbers vary slightly from one observer to the next, but most believe that customers who switch from fee-laden traditional bank checking accounts to GoBank accounts could save up to a couple hundred bucks per year. At worst, a user would have to pay the $8.95 monthly fee, and that’s only if the customer doesn’t make a deposit of $500 in any given month. That’s a total of $107.40 per year, at worst, versus fees ranging from $200 to $300 per year for comparable services at traditional banks.

If there’s no significant money on the table, why should WMT stock holders care? Because this is just one more way Walmart can keep customers engaged and visiting its stores. More foot traffic invariably leads to more sales.

As for GDOT, while the sizable jump from Green Dot stock on Wednesday might have been a bit overdone, the market had the right idea.

Walmart just put Green Dot in an enviable position as the collector of what should be millions of dollars’ worth of demand deposits.

Green Dot Stock Isn’t the Only Way to Play

Still, before traders latch onto GDOT stock as the one and only way to invest in the fading line between banks and nonbanking companies, they should recognize that other companies could do something similar — and better.

Indeed, a handful of tech companies have already kicked the idea around.

With Wal-Mart and Green Dot setting something of a precedent, don’t be shocked to see these outfits become de facto banks as well:

  • Apple (AAPL): Not that Apple wasn’t in the payments game before, but two weeks ago when it unveiled the iPhone 6, the company made a point of highlighting Apple Pay as a new and improved way to use the iPhone as a digital wallet. Given the company’s recent security gaffes, it might eventually feel it can better protect users by keeping all this sensitive data in-house as the bank rather than serving as a bank or credit card intermediary. More than that, all the attention placed on the Apple Pay app earlier in the month clearly sent the message that Apple wants to do more in the payments arena beyond near-field communication.
  • PayPal: A division of eBay (EBAY), PayPal already facilitates billions of dollars worth of cash transfers per year for more than 150 million customers, and in most ways may have mastered the art better than Green Dot or Walmart have. If for no other reason than leveraging its well-established name, PayPal is the odds-on favorite for becoming a bank — via a partner — among the three companies in question. And it’s already in the credit card game.
  • Amazon.com (AMZN): It’s probably last in the race to becoming a bank, but what Jeff Bezos lacks in finesse he more than makes up for raw willpower’; if he wants to expand the admittedly-uninspiring Amazon Wallet into more in the future, he could. He’s also starting out with a bigger user base than PayPal, though it would take a lot of work to redefine Amazon as a qualified financial middleman.

Bottom Line

However it all shakes out, one thing is clear for anyone who owns WMT or GDOT stock — the line between banks and nonbanks is plenty blurred now, and similar partnerships are likely to emerge now that Green Dot and Walmart have become a threat not just to banks, but also payment facilitators like PayPal.

Yes, even PayPal.

See, GoBank is a marketable product that could appeal not just to the underbanked or unbanked, but also to consumers who are simply fed up with PayPal fees but can’t accomplish everything they need to with Apple Pay or Amazon Wallet. GoBank is a debit card and a checking account rolled into one, and also offers bill-pay services, accepts check and direct deposits, and allows money transfers to other GoBank customers.

Functionally speaking, there’s nothing GoBank can’t do (that customers actually need done), and business can be conducted online or in one of Walmart’s thousands of stores all over the nation. That’s something no other company, bank or not, can say.

Look for more such partnerships in the near future now that Wal-Mart and Green Dot have paired up.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/green-dot-gdot-stock-wmt/.

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