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Walmart’s Latest Foray Into Finance Makes a Friend of an Old Foe

Bloomberg logoBloomberg 3/5/2021 Jenny Surane
Sheila Bair standing in front of a laptop © Bloomberg Sheila Bair

(Bloomberg) -- One of Walmart Inc.’s longtime foes conceded the retailer’s latest foray into banking could end well for consumers.

“There are still a lot of people who want a physical location to go to for their banking services, and Walmart could provide that with all its stores,” said Sheila Bair, who oversaw the Federal Deposit Insurance Corp. when the retail giant last applied for a banking charter. Bair placed a moratorium on the application, which Walmart ultimately withdrew in 2007 after years of controversy.

Walmart this week hired a pair of senior Goldman Sachs Group Inc. bankers to run a financial-technology startup it’s creating with the venture capital firm Ribbit Capital. The world’s largest retailer has been pretty tight-lipped about its plans for the fledgling unit, but has said it doesn’t currently have plans to apply for a banking charter.

Walmart last applied for a charter in 2005, at the time arguing it could save $30 million a year from processing credit- and debit-card transactions in-house. This time around, Walmart has said it hopes to offer affordable financial services to the millions who already shop at the retailer.

“We need to know what Walmart plans,” Bair said in an interview on Bloomberg Television. “If they just plan to fatten their profit margins, well good for them but that’s not really a public-policy reason to provide the charter.”

Read more: Goldman’s Strategy Stymied by Walmart as Consumer Leaders Defect

One in four U.S. adults is considered unbanked or underbanked in the U.S., according to the nonprofit Financial Health Network. Together, this group pays nearly $200 billion a year in fees and interest on financial products.

Even for consumers with a bank account, the fees can be substantial. For instance, banks collect roughly $17 billion a year from overdraft-related fees, according to the consultancy Oliver Wyman. Much of that is generated from a small subset of customers who overdraft one or more times a month.

The frequent overdrafters end up accounting for more than half of the profitability of mass-market checking accounts, Oliver Wyman found. That means lower-income consumers often subsidize free checking accounts for their wealthier counterparts.

“If Walmart can democratize -- or further democratize -- credit and banking services and provide it at the cost that you and I get, then I think that would be hugely beneficial,” Bair said.

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