Wal-Mart to offer discount financial services

By Neil Buckley in New York, http://news.ft.com/home/us/ Published: January 7 2003.

The entry of the discount superstore giant into financial services has always been feared by financial competitors worried that it could undercut their margins while facing a lighter regulatory burden.

The retailer's move could provide stiff competition to rivals including banks, Western Union, and the US Postal Service, which handled 220m money order transactions in 2000, according to the Nilson Report, a credit card research group.

Wal-Mart, based in Bentonville, Arkansas, has twice tried to buy banks in the past three years but was thwarted by changes in state and federal legislation.

An attempt last year to offer banking services in up to 100 new stores in partnership with a US subsidiary of Canada's Toronto Dominion Bank ran into regulatory problems.

But Wal-Mart - which rents out space to local banks in many stores - says there are services such as cheque cashing, wire transfers and money orders that it can offer without owning a bank.

All three have been introduced into at least some stores in recent months, and are now being expanded across the US.

Analysts see the move as a possible first step in a broader push into financial products.

"I think financial services is an opportunity," said Lee Scott, Wal-Mart's chief executive. "I'd like to do it more along the Wal-Mart way than other people's.

"Rather than pricing off the market and [saying] if the market's at a 70 per cent margin, we could be at 50 per cent and make a lot of money and still be cheaper, I'd rather say, what is a fair return on doing that?"

Wal-Mart hired Jane Thompson, a former executive with McKinsey, Procter & Gamble and Sears Roebuck eight months ago to head its financial services efforts. She presented plans to Wal-Mart's board last month.

Ms Thompson says Wal-Mart will offer payroll cheque cashing at a flat $3 charge up to a certain value, compared with rivals' 3-6 per cent commission rates.

It will charge 46 cents for money orders, against an average $1 cost at the post office.

Both services are important to Wal-Mart customers, more than 20 per cent of whom have no bank account, Mr Scott says.

Wire transfers are widely used by its many customers who have relatives outside the US. The retailer will also introduce discounts on the services to its 1m US staff.

Ms Thompson plans to introduce improvements to Wal-Mart-branded credit cards, a retail card with GE and a MasterCard with JP Morgan Chase, to attract more customers. But she says Wal-Mart has no plans to run and manage its own card.