Wal-Mart Stores Inc. has scrapped plans to open its own bank, ending a two-year controversy that roiled financial-services companies that feared direct competition from the world’s largest retailer.
Wal-Mart said March 16 that it had notified the Federal Deposit Insurance Corporation that it was withdrawing an application to open a so-called industrial bank in Utah. The unit would have enabled the Bentonville, Ark., company to process credit card and debit card transactions internally.
“We hope this gets us out of the spotlight,” Jane Thompson, Wal-Mart’s financial services president, said in an interview. “The controversy around us and whether we wanted to branch wouldn’t die, even though the facts were to the contrary.”
The move represents a victory for banking lobbies that threw up hurdles since Wal-Mart’s application was filed with the FDIC in July 2005. Banks said the retailer would have used the bank to eventually open branches in its stores and dominate the industry.
(Wal-Mart already does have offices for other banks in some of its stores. Cranston-based Domestic Bank has set up branches in Wal-Mart’s stores in the Warwick Mall, in Providence, in Coventry, and in Raynham and Northbridge, Mass., and CEO Craig A. Baker calls Wal-Mart “a wonderful partner.”)
In an interview with Bloomberg Television, FDIC Chairman Sheila Bair said Wal-Mart had made a “wise decision,” because “the controversy was really hurting them in terms of their public image and their intentions of where they wanted to go with financial services.”’
The company would have saved about $30 million a year by doing its own processing of electronic payments, which is not a lot for a company like Wal-Mart, Bair said.
Thompson said Wal-Mart’s announcement was prompted by negative attention to its application and the FDIC’s decision in January to extend for one year a freeze on industrial-bank applications from commercial companies.
The FDIC, which insures deposits at U.S. banks and oversees industrial banks, said the freeze was designed to give Congress time to set policy on the issue. Wal-Mart’s announcement will not affect the one-year freeze, since it didn’t target any specific application, Bair said.
U.S. Rep. Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, and U.S. Rep. Paul Gillmor, an Ohio Republican, introduced legislation in January that would ban new industrial banks owned by commercial companies, including Wal-Mart and another applicant, Atlanta-based Home Depot Inc., the world’s largest home-improvement retailer.
Industrial banks are state-chartered, limited-service institutions based in a handful of states. The Financial Services Committee scheduled a hearing last week on the legislation.
“I appreciate the constructive step by Wal-Mart not to pursue” the bank charter, Frank said in a statement. “But it does not, in my judgment, remove the need to legislate.” Wal-Mart said it never planned to open branches. It won’t be applying for any other bank charter, John Kelly, Wal-Mart’s director of tax and financial services, said in an interview.
The retailer will continue to expand into financial services, Kelly said. Wal-Mart already offers a store credit card, check cashing, money orders, wire transfers and bill payment services in partnership with outside vendors. Those offerings saved its customers $245 million last year, Kelly said.
Banking groups that fought Wal-Mart’s bid were quick to declare victory.
“We’re popping champagne corks around here,” said Cam Fine, president of the Independent Community Bankers of America, a Washington-based group representing small banks. “We have worked very, very hard for 18 months to achieve this result.” “Wal-Mart’s announcement is not changing Home Depot’s plans to take over an industrial bank, spokesman Anthony Wilbert said in a statement.
“The Home Depot remains committed to its plan to acquire EnerBank USA,” an existing industrial bank, Wilbert said.
A state banking official in Utah, home to about half of the nation’s industrial banks, said Wal-Mart’s decision may smooth the way for other banks awaiting regulators’ approval.
“We’re hopeful that this will allow the FDIC to begin the process of approving the applications that are waiting,” said Paul Allred, deputy commissioner at the Utah Department of Financial Institutions. “It’s been frustrating for the department to not have anything take place in the last 17 months.”
U.S. Sen. Robert Bennett, a Utah Republican who has opposed efforts to curb the industry, indicated in a statement that he’d continue to defend his state’s industrial banks.
With reporting by Peter Cook in Washington and Carol Wolf in Cleveland.
