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Wal-Mart Stores Investment in Green Dot Gives WMT Financial Clout


Wal-Mart Stores’ (WMT) initial foray into the financial services sector may have gotten off to a bumpy start, but that isn’t stopping the retail giant from finding smoother roads to its monetary mission. Wal-Mart has acquired some 2 million shares of the U.S. prepaid credit card company Green Dot, a move that comes on the heels of an expected regulatory approval for Green Dot’s $15.7 million acquisition of the Utah-based Bonneville Bank. Though Green Dot executives say the store would have no role in operating the bank, its minority stakeholder title — less than 1 % of the company — would give Wal-Mart indirect access into the country’s financial space.

Plans to open its own independent banking service failed in 2007, following a contentious battle against industry insiders and politicians.  The company has since turned to Canada, which granted approval earlier this month to a Wal-Mart Canada Bank. Now it’s launching Wal-Mart Rewards MasterCard, in what’s seen as only the beginning of its charge into the Canadian financial market.

Green Dot already manages the store’s prepaid debit cards, mini checking accounts — carrying logos of Visa (V), MasterCard (MA) and Discover Financial Services (DFS) — that allow cardholders to replenish the cards, for a small fee, with deposits at the store. It’s these cards that Wal-Mart and others in the financial industry see as a burgeoning business opportunity created in part by the recession itself.

The economic collapse that led to the government’s massive bailout of the banking industry created public hesitation and even outright distrust of banks, pushing more people toward prepaid cash card usage. Experts estimate that up to perhaps 73 million adult Americans are either now or potential cash card customers, those who do not have bank accounts because they lack access to banking services, due to low incomes or inability to maintain minimum account balances.

And the number of “bank-less” consumers appears to be growing in the recession. (Related Article: MoneyGram (MGI) a great stock to cash in on underserved banking consumers)

The New York Times reported that the volume of transactions on prepaid cards was more than $4 billion in 2008 and expected to top $7 billion in 2009 and nearly $11 billion this year, according to estimates by Mercator Advisory Group, a research organization that reviews credit and credit payment information.

But what excites businesses is that nobody — analysts included — really knows just how much money there is to be made off prepaid cards.

Mark Troughton, president of cards and networks at Green Dot, told The New York Times that estimates are too low. “We did more than $4 billion by ourselves last year,” he said.

Wal-Mart brings name recognition to the prepaid card industry and insiders hope it promotes widespread use. If you’re using a store as a bank, retailers see it, you’re more likely to be buying merchandise or products there.

It’s all good news for Wal-Mart, which is in the middle of rolling back prices even further to bolster sales while scouring its overseas markets for growth potential.  The stock’s year-to-date returns are off -3% as of early trading today, compared with a tiny gain in the broader market so far in 2010. WMT stock is up a paltry +6% in the last year compared with a +21% gain for the Dow Jones Industrial Average. Walmart was a safe haven for cash-strapped consumers during the recession, but as consumer spending improves the company has seen its same store sales slide recently.

Offsetting any loss nationally is growth in markets like China and the U.K., where Wal-Mart-owned Asda recently purchased nearly 200 smaller supermarkets. And earlier this month, it announced plans to add 500,000 new jobs worldwide within five years, showing no signs of slowdown from the world’s retail superstore. Sales internationally totaled $100 billion, about 25% of its $405 billion in total revenue last year.

The company’s deal with Green Dot and others shows that Wal-Mart is taking whatever road it needs to attain financial success, a road paved not only with smart intentions but serious growth potential.

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Article printed from InvestorPlace Media,

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