Should You Be Afraid Of Walmart?

The retail giant rolled out a new checking account product last week. How much of an effect will it have on credit unions?

On Wednesday of last week Green Dot and Walmart announced the rollout of GoBank, a checking account product linked to a MasterCard debit card and offered exclusively at the retailer. The product is expected to be nationwide by the end of October.

A quick summary of the product and its features:

  • GoBank doesn’t charge overdraft fees, minimum balance fees, or monthly fees if there is an established direct deposit of $500 per month; otherwise, there is an $8.95 monthly membership cost.
  • Other fees include a 3% foreign transaction fee as well as out-of-network ATM fees Walmart has 42,000 participating ATM locations that are typically $2.50 plus any other fees the ATM may charge.
  • Walmart charges a $2.95 one-time starter-kit to activate the account, with a minimum first balance of $20.
  • Among other mobile-friendly features, GoBank offers instant person-to-person payments (via text and email), pay-anyone bill pay, and a Fortune Teller budgeting tool.
  • GoBank uses proprietary underwriting techniques to most consumers who pass ID verification to open an account. It does not use a ChexSystems score or credit bureau rating.

This is not Walmart’s first foray into the financial service sector. Two years ago, the company introduced a partnership with American Express to offer prepaid card and debit accounts, which many other retailers now offer.

This GoBank account is meant to further appeal to the unbanked the FDIC estimates 10 million households do not use a bank, and states with more Walmart stores tend to have a higher percentage of unbanked households as well as to lower-income shoppers weary of fees.

Walmart customers … increasingly feel they just aren’t getting value from traditional banking because of high fees, Daniel Eckert, senior vice president of services for Walmart U.S., said in a statement. Adding the GoBank checking account to our shelves means our customers will have exclusive access to one of the most affordable, inclusive, and easy-to-use checking accounts in the industry. GoBank gives our customers yet another option as to how they manage their money.

Walmart is one in a line of non-traditional competitors who’ve entered the financial services space, disintermediators they’ve come to be known, as the value propositions of their products and services attempt to disintermediate the supply chain, cutting out traditional financial service providers who they see as useless middlemen between consumers and their ability to buy.

Whether these non-traditional competitors are a legitimate threat to credit union market share is a larger conversation. But as to whether credit unions should fear Walmart’s GoBank? Today: no. Tomorrow: maybe.

As financial services continue to evolve in complex ways, customers are more likely to follow industry leaders. Who are the best leaders? The ones with the most followers.

With nearly 4,200 stores, Walmart is the largest retailer in the United States. Fiscal year 2014 sales total more than $473 billion or $53,959,645 per hour. It has a large footprint and streams of customers coming through its doors on a daily basis. It’s estimated that 90% of Americans live within 15 minutes of a Walmart.

Walmart has no shortage of potential customers of its GoBank, and shoppers likely will sign up for it. If checking account fees are the main consideration for a consumer shopping around, then GoBank looks like a good deal compared to the traditional bank. Even the accouterments are better, as a basic checking account at Citibank charges $12 for bounced checks and $34 for overdrafts, while Walmart doesn’t charge for either.

But GoBank is not an alternative to a bank or credit union. It’s an un-earning product that encourages users to shop at Walmart it’s an alternative for those who would otherwise use a payday product.

Walmart hopes to entice the people who don’t like fees to consider GoBank as a means to escape the nickel and diming. Although that argument might apply against banks, where only 38% offer free checking accounts, defined as an account that charges no monthly service fees or point-of-sale transaction fees regardless of the balance, it doesn’t hold as much weight against credit unions. After all, 72% of the 50 largest credit unions by asset size offer free checking accounts.

Credit unions are known for serving the underserved, potentially creating some overlap between themselves and Walmart. But it seems unlikely that an individual who is already a member of a credit union and with access to a checking account and everything else the credit union offers would leave for a single product offered by a retailer.

What’s more likely is that Walmart will pick up individuals who already spend a large percentage of their income in its stores, those people whom credit unions would likely serve but who are unaware of their options.

But as a company that markets itself as low-budget (Save Money. Live Better. Walmart.) and has a reputation for being more driven by cost and convenience than by connection, will it be able to develop the relationships it wants?

Walmart has the scale and resources that can make it a legitimate disintermediator, but are the customers who’ve been coming to take advantage of the lowest prices in the market going to remain loyal to a brand with little financial services experience when/if they realize a better option exists down the street?

Weigh in below.

October 2, 2014

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