Pub. 6 2015 Issue 2

www.wvbankers.org 6 West Virginia Banker E verywhere I visit in my travels around the state, the conversations I have with bankers invariably include the increased competition they face from non-bank players in the financial services markets. Credit unions, national insur- ance companies and Wal-Mart (now that it’s back in the news discussing its “bank- ing” plans”) are all part of the vast array of non-bank competitors WVBA members encounter every day. I recently ran across an article written by my friend and coun- terpart with the Washington Bankers As- sociation that speaks more eloquently than I about this issue, so, with his permission, I am yielding my own space this month in favor of his insightful words. “A SOLUTION IN SEARCH OF A PROBLEM” James M. Pishue, President & CEO, Washington Bankers Association In the children’s classic, Little Red Riding Hood easily sees through the wolf ’s disguise and recognizes that he’s up to no good. Let’s hope that federal financial regulators are just as insightful. Wal-Mart recently announced creation of GoBank, the retail giant’s latest thrust into the financial services business. Of course, Wal-Mart’s marketing and PR team is painting their plan with the rosiest of colors, saying that they’re only looking to serve consumers who “aren’t getting value from traditional banking because of high fees.” By the way, Wal-Mart says that the initial monthly fee for a GoBank account will be $8.95, unless the customer has at least one direct deposit of $500 or more each month. “Out of network” ATM transac- tions – presumably any that aren’t done at a Wal-Mart store – carry a three percent fee. In this regard, the fee structure is not un- like – and is in some ways more onerous – than some of the value-oriented accounts already offered by traditional insured depository institutions. With traditional financial organizations already offering accounts designed to meet the needs of these customers, why is Wal- Mart pushing ahead with their plan? Well, if anyone really thinks that Wal- Mart’s dive into the banking pool is driven by a desire simply to benevolently serve lower-income consumers, then I have some “almost ocean-front” property in Nebraska that might be of interest. Simply put, the more ways Wal-Mart gets consumers to depend on them, the more these consumers will visit their stores. And the more these customers visit their stores, the bigger the slice of their mod- est budgets will end up in Bentonville’s coffers. Consider the “Fortune Teller” feature, which Wal-Mart claims will help consum- ers in their budgeting. This feature will cross-check the price of a particular item that the customer is considering purchas- ing – at Wal-Mart, of course – against planned income and other expenses. Being able to make that comparison requires Wal-Mart to routinely analyze every aspect of their customers’ financial lives. What are the chances that Wal-Mart will engage in extensive data-mining of this customer information to assist in their merchandising and marketing efforts? There are also serious questions regarding the consumer risks posed by this latest “non-bank bank.” First, Wal-Mart’s press release doesn’t even say whether GoBank deposits will be federally insured. On the credit side, it’s unclear whether GoBank will offer loans and, if so, what interest rates they plan to charge. Will high credit card-like rates be extended to other consumer or short-term loan products? With the rash of problems in the retail sector, what data security measures will Wal-Mart and GoBank be required to im- plement? Given the amount of customer data that Wal-Mart could have access to, this is a serious issue and one that consum- ers should think long and hard about. From a competitive standpoint, Wal- Mart’s spin is equally vague. The GoBank announcement makes no mention of what sort of charter they intend to apply for, nor does it say what regulatory oversight will be given to the GoBank operations. Will its accounts be subject to the same CFPB scrutiny as those at traditional banks? What capital requirements must be met? Yes, Wal-Mart is huge, but so are multi-na- tional banking firms that are required to maintain specific reserves. The GoBank announcement has a haunt- ing sense of déjà vu about it. Remember that credit unions got their start in this country as a means of bringing financial services to people of modest means shar- ing some common affiliation. Sound a lot like what Wal-Mart is currently saying, doesn’t it? Today, expansionist credit unions are competing toe-to-toe with commercial and mutual savings banks for all consumers on a tax-advantaged basis. It’s fair to ask whether Wal-Mart’s GoBank announce- ment is merely the tip of another danger- ously inequitable iceberg. n A M essage from the P resident & CEO By Joe Ellison, President & CEO A Solution in Search of a Problem Simply put, the more ways Wal-Mart gets consumers to depend on them, the more these consumers will visit their stores.