Walmart is offering what they call a “low cost checking account” through Green Dot Bank, who also provides pre-paid debit cards. The account will cost consumers $8.95 per month, unless they have $500 in direct deposits during a month. The account will also cost $2.95 for a “starter kit.” The account will also allow access to an ATM network of 42,000 ATMs for free (no charge from Walmart but other fees may apply). For out of network ATM usagem Walmart will charge $2.50 per transaction. The account does not have any overdraft or NSF fees, so all insufficient fund transactions will be declined or returned.
https://www.greendot.com/
Sounds like a fairly competitive account, right? Don’t panic. Yet.
In July of 2005, Walmart applied for a banking charter. It was subsequently withdrawn, but this early warning sign was a clear indication of Walmart’s intent to enter into the banking industry. It was inevitable, just like Apple diving into payments.
Part of this is the banking industry’s own fault. As an industry, we have conceded segments of business and customers to outsiders, disruptors and challenger brands. Walmart proves that this is happening with the un- and underbanked segment as well. At all the megabanks and many community financial institutions, the segment Walmart is targeting would not even be able to open a checking account.
Using ChexSystems to screen and credit score customers, year-over-year data bears out the same results. Using criteria to pre-screen consumers (i.e., exlude) as “irrelevant” has a minimal impact on losses but significantly limits your organization’s revenue potential.
The purpose of tapping databases like ChexSystems is to mitigate risk. Services like these were developed in an era where fee revenue on checking accounts consisted primarily of regular monthly service charges. But should you still use it today?
Consider this: Community banks and credit unions that don’t use ChexSystems to screen customers generate approximately $22 more in annual revenue per customer, and — more importantly — they open 15% more accounts per branch per year.
Reality Check: If you don’t screen customers and offer a free account, you already have a product with a value proposition that is superior to the Walmart product.
If you’ve made the decision to screen customers, you can still offer these potential customers a checking account with no overdraft privileges, and possibly even a monthly fee. But what consequences will Walmart have on your financial institution’s, particularly with respect to the “No Overdraft Charges” provision? First, frequent NSF customers value the overdraft service and want their items paid and their debit card honored, even/especially when they do not have the funds in their account.
Bottom Line: Walmart’s offer will siphon off some accounts in the marketplace and cost some NSF revenue, but it won’t be significant. Walmart will decline all NSF items. The customers that utilize this service do not want their items declined.
Consider the level of service and convenience provided at your organization vs. your local Walmart. While Walmart has many national locations, community financial institutions’ saturation and convenience on the local level is much higher. Additionally, community institutions also employ more qualified personnel.
So Why Is Walmart Doing This?
The direct profitability of banking relationships is not what’s driving Walmart’s decision. They will try to maximize interchange revenue, for sure, but the larger opportunity for Walmart is to get customers in the door more often and monetize them through Walmart products.
GoBank’s privacy policy (below) sheds a little more light on this. Walmart’s entrance into banking is just one more channel they can leverage to increase retail sales. Resist the temptation to conflate it into something more.
https://m.gobank.com/privacy-policy
| Reasons we share your personal information | Does Green Dot share? |
Can consumers limit this sharing? |
|---|---|---|
| For our everyday business purposes, such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes | No |
| For our marketing purposes – to offer our products and services to you |
Yes | No |
| For joint marketing with other financial companies | No | We don’t share |
| For our affiliates’ everyday business purposes – information about your transactions and experiences |
Yes | No |
| For our affiliates’ everyday business purposes – information about your creditworthiness |
No | We don’t share |
| For nonaffiliates to market to you | No | We don’t share |
One last observation: Walmart’s account allows free access to 42,000 ATMs. If you check the locations of ATMs in your local ZIP code, you will likely find that around half of the ATMs listed are at traditional bank locations. Walmart banking customers will be still be visiting traditional financial institutions to access ATM services.
Will any of those banks and credit unions be making a concerted effort to win those customers?
Maybe… you.