Banking with Non-Banks

Let’s just say it: Wal-Mart is in the banking business. And soon, it won’t be the only company of its kind to get in on the business.

The massive retailer just launched Walmart Pay, becoming the first in its industry to to offer its own payment capabilities. As expected, the free service will be integrated into the company’s own mobile app, and is set to become widely available nationwide by next summer.

The service works with any Apple or Android device, at any checkout lane, and with any major credit, debit, pre-paid or Walmart gift card. Clearly designed specifically for its own customer base, Walmart Pay enables users to check in in to pick up an online order at a Wal-Mart store, refilling pharmacy prescriptions and finding an item’s store location. The fact that 22 million consumers already use the Wal-Mart app every month means it has a potential head start in this key market.

As we all know, that market is already crowded. Google Wallet has been around for more than four years, and the company’s Android Pay just a few months ago. Samsung Pay has a variation on that platform too, with the support of the global electronics conglomerate. Tech innovator Apple hit the market more than a year ago with Apple Pay, bringing along retailers as diverse as Macy’s, Duane Reade and Whole Foods as partners. And there are many alternatives, such as Venmo, Square and Belly.

Still, Wal-Mart’s entry into mobile payments is interesting for reasons that go beyond convenience and brand extension.

First, this is by no means the company’s first such offering: Wal-Mart has made multiple forays into financial services (with varying degrees of success). In September of last year, the retail giant company unveiled GoBank, a service that teamed up with Green Dot (best known for its prepaid payment cards) to offer checking accounts to just about everyone.

As with most Wal-Mart initiatives, it was designed to offer commodity series for a low cost: no minimum, and not even a penalty for overdrafts or bounced checks. While the retailer has a massive customer base that’s more diverse than the stereotype holds—after all, in many areas it’s the only game in town—GoBank was ideal for consumers with a troubled credit history. For the record, this is a massive market. The FDIC estimates that some 10 million households have no contact with a banking institution of any kind.

Additionally, Wal-Mart has the clout and resources to move to its own beat in many disciplines. Remember, the company chose to stay away from the Apple Pay launch, going instead with the Merchant Customer Exchange, a vendor-owned consortium.

But there’s also a larger question that deserves attention. On this blog, we’ve commented often on how financial services providers have had critical functions hijacked by more nimble technology vendors. Indeed, the mobile payments field alone has many examples of this breed of competition. So sure, Wal-Mart clearly stands out for its size and global reach, but if it can offer one service after another that were previously the exclusive domain of banks, could other big companies follow suit?

If that happens—and if history is any guide, it surely will—one area to monitor will be that of regulation. Every industry has compliance issues to deal with: Think health care, in which a welter of mandates makes it very hard to get new drugs to market. Financial service is absolutely no exception: Banks of every stripe operate under onerous rules that stand as obstacles to fast changes.

By itself, Wal-Mart Pay is just one more mobile payment option from one more vendor, even if it happens to be the world’s largest retailer. But as Wal-Mart and other players from outside the industry serve up their own mobile payment series and checking accounts, will the government step in with new levels of scrutiny? Stay tuned.

Written by Jack Dougal

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