Wal-Mart expands banking services with Green Dot, legal challenge possible

Wal-Mart continues its move toward big box banking by unveiling a new checking account partnership with Green Dot Corp. aimed at lower costs for its core customers. The GoBank FDIC insured checking account will be available exclusively at Wal-Mart amid a nationwide rollout by the end of October, the retail giant announced Wednesday (Sept. 24).

Industry insider Ben Jackson of the Mercator Group said the GoBank product is likely to result in a legal challenge from the regulated banking industry.

“Wal-Mart pursued a banking charter and was defeated but has continued to expand its financial offerings through strategic partnerships. This one allows Wal-Mart to act as a deposit taker because customers can upload deposits at the checkout counter, and I think the traditional banks will have a problem with that,” Jackson said.

The Arkansas Bankers Association said the product looks like it might be a good for the unbanked population and the industry probably won’t contest that segment, but there will more scrutiny of the overall product.

“My concern is with the uptick in fraud we are seeing in the retail segment. You know the problems Home Depot recently had. Simmons Bank for instance, issued new cards to all of its customers who had shopped Home Depot during the period in question. We don’t know if Green Dot will offer such protection on this account,” said Bill Holmes, president and CEO of the Arkansas Bankers Association.

He said the industry will likely object on the name alone —“GoBank.”

"GoBank members enjoy full protection from unauthorized activity as they would expect from any FDIC-insured bank account," Alok Deshpande, chief product officer for GreenDot Corp., told The City Wire when asked about fraud protection.

INSTANT GIANT
Jackson gives GreenDot CEO Steve Streit a lot of credit for the competitive product that solves the hurdle the banking industry has faced with how consumers deposit cash with a mobile banking app. He said the partnership with Wal-Mart solves that issue with the retailer’s expansive 4,300 store U.S. network. Jackson said large banks such as Bank of America have been pondering the cash deposit upload conundrum for some time.

“Suddenly Wal-Mart has become one of the largest banks in the country in terms of branch locations. We know that the No. 1 reason consumers chose a bank is because there is branch near their home. It remains to be seen if consumers will view their Wal-Mart store as bank branch,” Jackson said.

In branch locations, Wal-Mart would rank behind of Bank of America’s 5,300 and Chase Bank’s 5,500 locations, but it is four times the size of Citibank and Capital One, according to the FDIC.

Daniel Eckert, senior vice president of sales for Wal-Mart U.S., cited studies that show overdraft and other fees on traditional bank accounts cost the average bank customer $200 to $300 a year.

"That is typically what our customers spend for fresh fruit and vegetables a year," Eckert said, adding that banking fees are "a real expense for them, and it puts a real pinch in their pocket. … This product is really designed toward Wal-Mart shoppers who find themselves dissatisfied or unhappy with the fees and costs associated with traditional banking, as well as customers with a spotty record of managing their account.”

CONSUMER SOLUTIONS
Retail analyst Carol Spieckerman chalks this up as “another great example of Wal-Mart swooping in and providing solutions for customers who are getting left behind by traditional providers.”

Spieckerman, CEO of newmarketbuilders, said banks have “done the math” and are abandoning low-balance customers in droves and shunning the unbanked altogether.

“Unlike banks, though, Wal-Mart has a stake in helping these consumers escape the vicious cycle of punitive fees levied by traditional institutions. That money could be better spent in its stores,” she added. “As such, Green Dot won’t have to be a direct profit center for it to pay off big time for Wal-Mart, particularly if Green Dot ATMs are set up in the majority of Wal-Mart stores.”

The GoBank checking account provides a host a linked MasterCard debit card, and doesn’t charge overdraft fees, minimum balance fees or monthly fees with qualifying direct deposits of at least $500. Green Dot believes customers will find the product competitive noting several features and functions like the early paycheck availability or the fortune teller advice that helps users stay on budget.

Wal-Mart spokeswoman Molly Blakeman told The City Wire that there are physical checks available with the GoBank. The checks can be pre-ordered for free during the initial product launch, Green Dot added there will be charge after that. But the product does offer free bill pay via paper check or mobile transfer.

Blakeman said the reason Wal-Mart and Green Dot collaborated on GoBank is to give consumers another choice for their banking needs. She said the BlueBird Card launched in 2012 and the other options are still available at Wal-Mart and this new product will be added to that assortment.

“Giving our customers the broadest assortment is just what we do,” Blakeman said.

SPECIAL FEATURES
Jackson agreed that the early paycheck option is an intriguing option for consumers living paycheck to paycheck. GoBank said it offers early payroll direct deposit in some cases that allows customers to receive access to their paycheck up to two days earlier than normal. Jackson explained that this feature is already part of the Rush Card, another prepaid debit card product. He said when there is an established pattern of direct deposits the bank could allow access a little early, especially when they can see that the credit is headed their way.

“This is a big deal for consumers that run short of funds a few days early and might otherwise have relied on a payday loan, which are quite expensive. This feature is likely not available right away but with an established pattern of deposits could be obtained,” Jackson said.

He also said this GoBank product is great attempt at a checking account for the mobile age.

“GreenDot can deliver a power marketing message to the Wal-Mart shopper that their product offers some interesting features that also help the shoppers better manage their money,” Jackson added.

The Fortune Teller feature lets a consumer know when they are about to purchase an item they cannot afford. He said there is a growing demographic seeking to avoid debt, and retailers that offer tools to help them with savings and money management are likely to be favored.

TROUBLE SHOOTING
Jackson worries that if a user has a problem with their card that the average checker at Wal-Mart won’t be able to handle that complaint without holding up the line.

“We talked to convenience stores in the past about why some of them don’t sell pre-paid phones and we were told that when they did and the consumer had a problem that they brought it back into the store upset and store workers had no way to fix the problem. The last thing retailers want is to have upset consumers in their stores when there is no way they can solve the issue,” Jackson said.

Holmes also agreed that training all the cashiers at the store level could be challenging for Wal-Mart.

Deshpande, the chief product officer for GreenDot Corp., explained that consumers can load cash onto the cards at any register by handing the cashier the money and then swiping their card, noting that cashiers are trained on how to load debit cards.

Jackson also wonders where it will go from here and if Green Dot and Wal-Mart may offer a product that extends credit to consumers.

“It’s an interesting partnership. There are lots of doors opened for each party that’s for sure. It remains to be seen if it will pass the legal fight it’s bound to face,” Jackson said.

WHAT’S NEXT?
University of Arkansas banking expert John Dominick said he’s not surprised to hear Wal-Mart is expanding its banking services because they have added products through various partnerships during the past few years.

“One day we might buy cars from Wal-Mart. Just drive up and get your groceries and tell them to add a Chevrolet to your cart. There could be models out front selling for one low price. I might be competing with them someday at Walmart University,” Dominick joked.

He agreed that the banking industry would have plenty to say about this latest GoBank product, because he believes it will resonate with the Millennial generation — a demographic traditional banks are trying to attract.

“Who knows maybe someday you can get your mortgage at Wal-Mart or get an unsecured loan to cover your purchase when you’re running short on funds,” Dominick said.