Wal-Mart’s new GoBank has bankers on edge

Published 5:00 pm Thursday, October 16, 2014

Some bankers see the launch of “GoBank” — a smartphone-friendly checking account with California’s Green Dot Bank that is expected to be available through Wal-Mart stores by the end of October — as another attempt by Wal-Mart to encroach on their turf.

“Wal-Mart has been trying for years to get into the banking industry and to be a bank,” said Rose Oswald Poels, chief executive of the Wisconsin Bankers Association. “And I think their partnership with Green Dot is another way of sort of doing an end run around the banking industry, from a perception standpoint.”

The Independent Community Bankers of America, a trade group that represents smaller banks around the country, is calling on regulators to scrutinize the new checking accounts the way it does those of traditional local banks.

One Wisconsin-based bank has a special concern: More than a dozen of its branches are in Wal-Mart stores. Citizens Community Federal Bank of Eau Claire said it considers the new GoBank offering direct competition for checking account customers.

But national personal finance expert Greg McBride said most banks have little to fear — at least initially — from the Green Dot checking accounts, which can be set up after a consumer buys a starter kit for $2.95 at Wal-Mart. McBride, chief financial analyst for Bankrate.com, said the target customer for the checking accounts probably isn’t someone banks would be pursuing anyway.

The Green Dot checking accounts, which are linked to a debit card, have an $8.95 monthly fee unless the user has at least $500 direct-deposited into it each month. But the accounts have no overdraft fees, no nonsufficient funds penalties, no minimum balance requirements and a network of 42,000 free ATMs.

They are meant more for people who aren’t likely to have — or don’t want — a traditional checking account from a bank, McBride said.

“There’s a big market — a lot of customers who either can’t get a bank checking account, don’t want it, have a history of overdrafts — and some of those are customers that banks have pushed out the door over the past few years,” McBride said. “So yes, there is a market for that, but it’s not necessarily going to be poaching the banks’ best customers by any means.”

A scoring system often employed by traditional banks to determine eligibility isn’t used by GoBank. Rather, it uses proprietary underwriting methods to allow almost anyone who passes ID verification to open an account.

In marketing the checking account, though, Wal-Mart seems to indicate that GoBank would be happy to attract customers from other banks. Part of its online advertising pitch: “GoBank is a checking account designed for people who are fed up with big banks and their big fees.”

Molly Blakeman, speaking for Bentonville, Ark.-based Wal-Mart, put it this way: “Is it a great product for people who may be unhappily banked or unbanked? Absolutely. But it would be a great product for anybody who’s looking for a change. And when you think of no NSF fees, no overdraft fees, no monthly fees with a qualifying direct deposit, that is a very enticing product.”

Checking accounts are important in banking because they’re usually how the bank-consumer connection begins.

“It is the centerpiece of the banking relationship, and it’s the product from which other products and services are cross-sold,” McBride said.

Green Dot Bank, based in Pasadena, Calif., is a publicly traded company whose products and services are designed to appeal primarily to consumers living in households that earn less than $75,000 a year. Its checking accounts are FDIC insured.

Asked whether marketing GoBank checking accounts might undermine the efforts of financial institutions with branches inside Wal-Mart stores, Blakeman said, “What this is is just another offering in our stores to give our customers options.”

Wal-Mart owns more than 4 percent of Green Dot stock. Blakeman said the checking account “is a product offered and brought to customers by Green Dot Bank.”

“We obviously think it’s a great offering, and that’s why we put it on our shelves,” she said.

Oswald Poels of the Wisconsin Bankers Association was among those who went to a Federal Deposit Insurance Corp. public hearing in Washington in 2006 to lobby against Wal-Mart’s application to open an in-house bank to process purchases at its stores. Wal-Mart eventually dropped that effort but has offered personal financial services, such as check cashing and an alternative checking and debit card.

“The main thing that we would want to make sure happens from a regulatory standpoint is that they are regulated the same, and that all these accounts that are going to be opened at Wal-Marts all across the country are subject to the same regulatory scrutiny that bank accounts are,” Oswald Poels said.

Even if Wal-Mart doesn’t aspire to get into banking in a bigger way, marketing GoBank checking accounts should draw customers in need of financial services into the retail stores more often, McBride said.

“Their cross-sell opportunity is a store full of merchandise,” McBride said. “The goal is to get people in the store.”

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