Walmart has been making some serious efforts to enter the banking industry. Last month, a federal hearing was convened to consider the possibility of conditionally granting Walmart a limited banking charter. Walmart says that it is seeking the charter to process its own credit cards, and not to open branch banking or make mortgage loans.
Walmart has attracted considerable opposition to the banking proposal, and they have been trying to expand their financial services for years. The largest trade association, the National Association of Realtors, opposes granting Walmart a banking charter because of possible conflicts of interest. The main concern is that Walmart could grant loans to its suppliers at a favorable rate which other banks cannot compete with. It also gives Walmart an edge over commercial firms that are not affiliated with a bank. Small businesses that need an operating loan might not get it from WalMart if they are competition or if they do not have a supplier relationship – and if other lenders cannot operate due to competition and loss of business then these small businesses could not get the loan they need. There is a concern that granting a banking charter for a federally insured bank to Walmart could erode the national policy against mixing banking and commerce.
Supporters of Walmart wonder if the “low low prices” in its stores could also apply to any retail banking operations it might engage in for the future. Currently, consumers pay fees for mortgage applications, closing costs, and of course, fees for all sorts of banking transactions. What if a firm such as Walmart brought the concept of low cost/low fee banking to customers who typically have incomes less than the national average? How would this affect the mortgage industry in general?
Ideally, discussions about Walmart banking should center on how Walmart will proceed with a charter that has been granted to other giant retailers such as Target and Nordstrom. But these firms are much smaller than Walmart, the world’s biggest retailer. The FDIC is in no hurry to make its decision, and Congress is expected to review the issue of allowing industrial loan corporations.