Anger toward banks helps Wal-Mart
The retailer has beefed up its financial services over the years, providing an alternative for fed-up bank customers.
The retailing giant is seeing new banking business from people fed up with Bank of America (BAC) and other financial institutions. As banking customers close their accounts, Wal-Mart is there with some options.
If this continues, Wal-Mart could be on its way to becoming a mini-bank for some Americans. Perhaps that's one reason why the company's stock has been on a roll over the last month, rising 8% to $59.19 Tuesday.
The company offers check-cashing and bill-paying services, The New York Times reports. Customers can also wire money overseas and load money onto pre-paid debit cards. Often, the fees for these services are cheaper than what other companies charge.
The Times interviewed one factory worker in Pennsylvania who closed his bank account after dealing with one fee too many. He now takes his paychecks to Wal-Mart, where he can cash them for a flat $3 fee.
Wal-Mart is just one beneficiary in a national tide of anger against traditional banks that culminated in the "Move your Money" and "Bank Transfer Day" events this past weekend.
Credit unions have also seen a swell in business, receiving at least 650,000 new customers since Sept. 29, according to a survey by the Credit Union National Association. That was the day news leaked that Bank of America was planning a $5 monthly fee for debit-card users. (The plan has since been canceled.)
Smaller community banks are also getting more members. A survey from the Independent Community Bankers of America found that 60% are getting new customers who have left big banks, CNNMoney reports. In addition, a tool from the group that helps people locate community banks has seen 5,000 inquiries in the last few weeks.
Wal-Mart's own research showed there was plenty of opportunity here. The company polled its customers a year and a half ago and found that more than 60% of the people using its financial services had bank accounts, the Times reported. But what they were paying those banks in fees was shocking: Between $200 and $400 over a six-month period, on average.
Wal-Mart has wanted in on this business for a long time. The company even tried to get a federal bank charter, but dropped those plans in 2007 amid criticism from lawmakers and the traditional bank industry. The worry was that Wal-Mart would drive small banks out of business by lowballing prices.
But now, Wal-Mart appears to be stealing customers from traditional banks even without that federal bank charter.
Large banks would have us think that they don't care about losing low-income customers.
"The banks are going to be better off because they are getting rid of their least-profitable or not profitable clients," writes Morgan Houssel, columnist for The Motley Fool.
I don't buy that. The lower-balance customers were the ones banks hit with numerous fees, including overdraft charges and money-order and check-cashing fees. Losing those customers to Wal-Mart and other institutions means losing one source of income for banks.
And you can be sure Wal-Mart will continue to build up and advertise its financial services, riding the wave of consumer discontent for as long as it can.
Even though I'm happy to see people moving away from the BIG banks (we can thank them in part for the finincial mess were in) I think it is a much better idea for people to move to credit unions as opposed to going to Wal Mart (who by the way also contribute to the bad economy by being the largest seller of Chinese made goods). Credit unions offer so much more than Wal Mart finincial services, lets not trade one evil for another.
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