Will Wal-Mart's new checking account product create a competitive challenge for the financial services industry? A senior financial analyst and a credit union CEO don't think so.
By the end of October, Wal-Mart's 4,200 U.S. stores will offer a new checking account product, GoBank, which won't charge overdraft, minimum balance or monthly fees with qualifying direct deposits. The nation's largest retailer said the checking account product from Green Dot Bank will be linked to a MasterCard debit card.
"The goal of Wal-Mart with this offering is very simple: The cross-sell opportunities of a store full of merchandise," Greg McBride, CFA, senior financial analyst at Bankrate.com, said. "The whole goal of this is to boost traffic into the stores and ultimately to boost sales."
The nation's largest retailer is looking for ways to draw shoppers. In August, Wal-Mart cut its stock earnings guidance for the year after posting a seventh consecutive quarterly decline in U.S. store traffic.
The Wal-Mart Go Bank product is expected to appeal to consumers who have had a history of overdrafts and either can't get or don't want a checking account at either credit unions or traditional banks, McBride said.
Neither a ChexSystems score nor credit bureau rating will be used as the basis for determining customer eligibility for the checking account product. Instead, GoBank will use "proprietary underwriting techniques" to allow almost any consumer who passes ID verification to open an account, according to Wal-Mart's prepared statement.
In the Eau Claire, Wis., region where there are at least five Wal-Mart supercenter stores, Rudy Pereira, president/CEO of the $1.4 billion, 154,812-member Royal Credit Union in Eau Claire, said he is not worried about the retail giant's checking account rollout.
"The question is will [GoBank] impact demographically the members we serve," Pereira said. "I believe not so much because we are in the process of reducing and eliminating fees. Our checking account is completely free with no minimum balance requirement, no direct deposit requirement, and no monthly charges. Our strategy is to drop punitive fee income."
Bankrate's 2013 Credit Union Checking Survey showed 72% of credit union checking accounts remain free, down just from six percentage points in 2010. The percentage of free checking accounts at banks, however, dropped from 65% in 2010 to 39% in 2012, according to Bankrate.
Royal CU is able to cut fees by $2.5 million annually by driving operational efficiencies and improvments.
"We are seeing good reaction from members and we've been seeing good growth," Pereira said.
The GoBank accounts will charge a monthly membership fee of $8.95, or $107.40 a year. Wal-Mart cited a Bretton Wood study that estimated consumers pay about $218 to $314 annually for a checking account. However, the retailer said that the $8.95 monthly fee will be waived with a qualifying direct deposit of $500 per month.
To open an account, Wal-Mart customers will be required to pay $2.95 for a starter kit. Other fees include a 3% foreign transaction fee and out-of-network ATM fees (typically $2.50 for an out-of-network ATM plus any fee the ATM owner may assess).
However, according to Bankrate.com, credit unions also have an advantage when it comes to ATM fees.
Nearly 30% of credit unions don't charge a fee for using another institution's ATM or waive at least one such fee per week. Among credit unions that do charge a fee, customers are typically charged $1 or $1.50 per transaction, while banks usually charge $2 per ATM transaction, according to Bankrate.com.
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