New Report Charts Walmart's North American Banking Moves and Likely Next Steps

Oct 20, 2010, 06:00 ET from Filene Research Institute

MADISON, Wisc., Oct. 20 /PRNewswire-USNewswire/ -- A comprehensive new report maps out the shape of Walmart's (NYSE: WMT) retail financial services footprint in the United States and Mexico, going on to suggest that the world's largest retailer has much more in store.

The Blended Walmart Business Model, published by the Filene Research Institute and written by Robert Manning, PhD, knits together the many angles of Walmart's involvement in banking services: from its 2007 charter travails to its foray into Mexican banking and, most importantly, to its long-term strategy of providing financial services to ever more of its many customers—with or without a formal bank charter. Manning brings a critical eye to Walmart's claims of low-price leadership in financial services.

Walmart has retuned its approach by offering financial products through partnerships in the United States and through an independent charter in Mexico. Highlights from the report include:

  • Walmart still wants a bank charter. The potential from finance and penalty fees combined with interchange fee savings' could easily garner more than $1.3 billion (B) annually from Walmart's payment card system and portfolio of customer credit card balances.
  • Walmart already offers a compelling range of benefits to potential banking customers: convenient locations and hours of operation, welcoming atmosphere, familiar customer service, straightforward fees, and fast transactions.
  • Walmart is targeting finance because it pays. The profit margins of Walmart's traditional retail sales average 23.7% gross and 3.5% net, whereas the averages for comparable financial services companies range from 14% to 38% gross and 6% to 9% net.

Manning makes a compelling case that Walmart's plan is advancing even without a U.S. bank charter. Today the retailer mainly offers ancillary financial products, but it may soon operate in the more traditional business model of deposits and loans. The retail banking industry, already nervous about where its next customers will come from, cannot ignore the competition brewing at the local Supercenter.

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About the Filene Research Institute: The non-profit Filene Research Institute is a consumer finance think tank serving the North American credit union system of 100 million members and $950 billion in assets. Filene publishes objective research and fosters consumer-focused financial innovation. The Institute collaborates with leading researchers and academic institutions worldwide.

SOURCE Filene Research Institute