New York Times
POSTED: 5:40 p.m. HST, Apr 17, 2014
LAST UPDATED: 6:44 p.m. HST, Apr 17, 2014
In a move that threatens to upend another piece of the financial services industry, Wal-Mart Stores Inc., the country's largest retailer, announced Thursday that it would allow customers to make store-to-store money transfers within the United States at cut-rate fees.
This latest offer, aimed largely at lower-income shoppers who often rely on places like check-cashing stores for simple transactions, represents another effort by the giant retailer to carve out a space in territory that once belonged exclusively to traditional banks.
In this instance, competitors like longtime wire-transfer companies were the immediate target: MoneyGram's stock fell more than 17 percent on the news; Western Union's went down about 5 percent.
Walmart has become a big player in alternative financial products, especially those that cater to people with little or no access to banks, like prepaid debit cards, check cashing and now, the new cash transfer program, called "Walmart-2-Walmart."
Lower-income consumers have been a core demographic for Walmart, but in recent quarters those shoppers have turned increasingly to dollar stores.
"Walmart-2-Walmart leverages our existing footprint and the large-scale systems that our company can bring to bear to enable a low-cost service such as this," said Daniel Eckert, senior vice president of services for Walmart United States.
More than 29 percent of households in the United States did not have a savings account in 2011, and about 10 percent of households did not have a checking account, according to a study sponsored by the Federal Deposit Insurance Corp. And while alternative financial products give consumers access to services they might otherwise be denied, people who are shut out of the traditional banking system sometimes find themselves paying high fees for transactions as basic as cashing a check. Alternatives to banks have sprung up in many unlikely places in recent years. Costco offers mortgages, for example, and Home Depot provides loans to help customers finance improvement projects. Walmart sought a banking charter for years before abandoning the effort in 2007.
"In many cases, these services crop up in response to demand, but it's also a space that's less regulated," said Suzanne Martindale, a staff lawyer at Consumers Union, an advocacy group. "There may be weak protections or a patchwork of protections."
Walmart said that its new service, especially for larger money transfers, would be cheaper than the alternatives. Transfers of up to $50 will cost $4.50 and transfers of up to $900 -- the maximum amount customers can send in a day -- will cost $9.50.
According to a fee estimator on Western Union's website, sending $900 within the United States could cost as much as $76 when done in person. MoneyGram's website estimated that the same transaction would cost $73.
Walmart already offered customers a way to transfer money in its stores, through a partnership with MoneyGram. Unlike Walmart-2-Walmart, MoneyGram does not have a $900 limit, and it allows for transfers to other countries.
Eckert said using MoneyGram would remain an option for Walmart customers. In its annual report, MoneyGram said that Walmart accounted for 27 percent of its total fee and investment revenue last year.
Financial services make up a relatively small portion of Walmart's overall revenue, and some analysts said the wire transfer program could ultimately be more consequential for other wire-transfer companies like MoneyGram and Western Union than the retailer.
Michelle Buckalew, a spokeswoman at MoneyGram, said in a statement that the company would not change its own prices in response to Walmart's announcement.
In a statement, Western Union said that domestic money transfers accounted for only about 8 percent of the company's revenue in 2013. Both Western Union and MoneyGram pointed out that they had hundreds of thousands of affiliated locations globally. Walmart has more than 4,000 stores in the United States.
Ria Money Transfer, a subsidiary of the payment company Euronet Worldwide, will be Walmart's partner for this program.
Last week, Walmart said it would begin selling organic pantry items, like tomato paste and apple sauce, for the same price as comparable nonorganic items, undercutting organic competitors. Given Walmart's size and the quantities of its orders, that initiative is likely to have far-reaching effects on the price of organic ingredients for years to come.
All of Walmart's U.S. stores, including its smaller, neighborhood market stores, will begin offering the in-house money transfer service on April 24.
Faye Landes, an analyst at the Cowen Group, said that since customers on both the sending and the receiving end of these payments would have to be physically in Walmart's stores, they might do a little shopping while there.
"This and the organic initiative are large-scale efforts both to drive traffic and to make a statement that they have very, very low prices on things people care about," Landes said. "They've had five straight quarters of negative traffic in the U.S., so every little bit helps."
Eckert of Walmart said that the program was not aimed at increasing traffic in stores, but acknowledged that it was a possibility.