US lawmakers: Wal-Mart threatens US payment system

March 10 Reuters

Quote

In a highly critical letter to the acting chairman of the Federal Deposit Insurance Corp., obtained by Reuters, a group of more than 30 Congress members asked the bank regulator to reject Wal-Mart’s application to open a bank in Utah.

“Wal-Mart’s plan, to have its bank process hundreds of billions in transactions for its own stores, could threaten the stability of the nation’s payments system,” the lawmakers wrote.

“Given Wal-Mart’s massive scope and international dealings, it is not possible to rule out a financial crisis within the company that could damage the bank and severely disrupt the flow of payments throughout the financial system.”

The congressmen said the losses to the FDIC, which insures deposits at banks and thrift institutions, could be staggering if Wal-Mart begins to have financial troubles that bleed into its bank’s business.

“Consider the consequences if Enron or WorldCom had owned a bank,” the group said.

Good political spin, but wouldn’t it be better if top banks could articulate the threat a little more clearly? I had Denis Bouchard, WalMart’s Director of Payment Services up to Charlotte a few months ago. Needless to say, there is opportunity for improvement in relationships between “Banks” and WalMart. An example (WalMart POP Success): WalMart had a very successful pilot with POP (Point of Purchase Check electronification) but it’s continued rollout is hampered by new proposed fees (NREF) by NACHA that would greatly impact the cost effectiveness of POP.

Unfortunately most banks don’t know how to collaborate as single entities or as an industry. The real danger for banks here is public relations. Customer’s trust WalMart much more then do their banks, and see congressional involvement not as a mechanism to “protect” customers or the financial system, but as a control play. The retail lock box business is in jeapordy, and other retailers are closely watching WalMart’s moves here. During Denis’ visit, he said that Banks need to work actively to drive down the cost (to WalMart) of the payment system to 0 (ZERO). Strategies designed to “protect” and insulate existing (ex. ACH) payment systems will drive WalMart to other channels. From WalMart’s perspective, Banks’ profitability in retail payments will no longer be borne by retailers.

GE Consumer Finance has shown the ability to partner in consumer credit. There is ripe opportunity for someone to partner in payments… but is there anyone innovative enough to act?