Saying it hopes to poach customers from mainstream banks, Wal-Mart Stores Inc. is rolling out a mobile checking account with a linked debit card — a program that it promised would remain low-cost by eliminating fees charged for overdrafts or failing to maintain a minimum balance.
The monthly membership fee of $8.95 is waived if customers set up direct deposits of at least $500 a month, something that even consumers with subprime credit scores probably would be able to do. Users also may load cash into their accounts at participating stores or deposit checks remotely by taking photos with their smartphones, officials at the Bentonville, Arkansas, company said Tuesday.
The service, known as GoBank, will compete against numerous mobile banking programs now available. It will be operated by Green Dot Corp., a Pasadena, California, prepaid-cards specialist that has a subsidiary bank. Green Dot Bank began test-marketing GoBank to customers early last year, a pilot program that has included offering the product in a few Wal-Mart stores.
A formal announcement of the new push was Wednesday, according to the companies, which said GoBank would be available in most of Wal-Mart’s nearly 4,300 U.S. locations by late October.
Wal-Mart, which made several unsuccessful attempts to start its own bank about a decade ago, already has about 1,100 financial service offices called Money Centers in its stores, with such “checking alternative” offerings as check cashing, money wiring and bill payment.
But GoBank is the first federally insured bank account the giant retailer has offered. Customers buying the service can pick up a starter kit at Wal-Mart stores, activate the account there with a one-time $2.95 fee and complete the application on their smartphones.
Ron Friedman, a retail expert at consulting and accounting firm Marcum, said financial services, as with grocery offerings, are another way for Wal-Mart to lure fickle customers into stores. That’s an important tactical move because the big-box chain has been struggling with stagnant U.S. sales and last month cut its earnings forecast for the year.
“Wal-Mart is becoming a financial institution,” Friedman said. “They are trying to be a full-service company. Customers come in to put money on the debit card and stay to shop in the store.”
Debit cards should be especially appealing to Wal-Mart’s core customers, many of whom do not have traditional banking accounts, Friedman said. The fact that fewer people are struggling to get by these days makes these individuals crucial to the company, he said.
“As the economy has gotten better, the upper-scale customers have gone to better stores, leaving customers who are lower-middle-class to lower-class behind,” Friedman said.
Elimination of overdraft fees will remove a source of income that is huge for traditional retail banks, which typically charge $34 per balance-busting transaction.
GoBank is designed to decline transactions that exceed an account balance, but sometimes larger purchases slip through, Green Dot spokeswoman Sharon Pope said. When that occurs, the account is frozen until the difference is made up out of subsequent deposits, she said.
Steve Streit, Green Dot’s chief executive, said his company will verify applicants’ identities. It also will run them through a proprietary credit checking system that Streit said is less likely than traditional bank systems to reject lower-income applicants and people who have damaged their credit by running into trouble with unrepaid overdrafts in the past.
The other source of customers is expected to be tech-savvy consumers who are familiar with mobile banking and fed up with fees, he said.
Daniel Eckert, senior vice president of sales for Wal-Mart U.S., cited studies that show overdraft and other fees on traditional bank accounts cost the average bank customer $200 to $300 a year. “That is typically what our customers spend for fresh fruit and vegetables a year,” Eckert said. Banking fees are “a real expense for them, and it puts a real pinch in their pocket.”
“This product is really designed toward Wal-Mart shoppers who find themselves dissatisfied or unhappy with the fees and costs associated with traditional banking, as well as customers with a spotty record of managing their account,” he said.
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