“This is an extension of Walmart’s larger financial services strategy. It’s adding one more service to form the full sweep of basic financial services offerings,” says Ben Jackson, senior analyst at Mercator Advisory Group, a payments and banking consulting firm.
Walmart has been acting like a bank for a long time. In fact, it once tried to get a bank charter but was unsuccessful. Since then, Walmart’s been coming up with other ways to offer its customers financial services including the most recent money transfer service.
But with the banking and finance industry under so much scrutiny these days, why would Walmart want to subject itself to further regulation? Jackson explains that Walmart’s goal isn’t so much about the fees it can earn by offering these services (though it helps), but rather it’s about keeping customers in stores longer.
“If customers are able to make financial transactions in a Walmart store, then they’re more likely to stay and buy something too. Walmart wants you to cash your check there, pay your bills there, send your money to family there and shop,” Jackson says. “ This is Walmart saying, ‘Don’t leave my store,’” he adds.
That won’t be too hard. According to Walmart, 95% of Americans live within 15 miles of one of its stores.
However, if customers are doing more of their shopping and errands at Walmart stores then that means other retailers are losing out. In this case, Western Union and MoneyGram come to mind; the two money transfer giants are now facing direct competition from Walmart.
“Money transferring is a big business,” Jackson says. According to Mercator’s CustoerMonitor Survey Series, in 2013 14% of consumers sent transferred money to friends and family up from 9% in 2012.
For Western Union in particular, consumer to consumer transactions, like money transfers, are a core business making up 80% of its annual revenue. MoneyGram says global money transfer and bill payment services are its primary revenue drivers as well, accounting for 95% of total fee and other revenue. The increased competition isn’t lost on their investors.
MoneyGram shares are down a whopping 15% today and shares of Western Union are sliding down around 3%. MoneyGram is likely taking a bigger hit because its services are currently offered in Walmart stores. The only leg up it seems to have over Walmart’s money transfer service is the ability to send money internationally–Walmart will only send money within the U.S.
MoneyGram and Western Union aren’t the only ones feeling Walmart’s heat. Banks are also faced with similar competition from Walmart. Specifically, low income workers who don’t have traditional bank accounts are turning to prepaid cards and alternatives to checking accounts. Banks like JPMorgan Chase and Wells Fargo are trying to fill that gap with prepaid and reloadable cards–something Walmart has been offering for years.
So what’s next for Walmart’s financial services strategy? A retirement services and investment operation? Not so fast. Jackson says that’s not Walmart’s goal–for now, at least.
“The big strategy is capturing people’s wallets as soon as they are filled. If a customer’s wallet is filled at a Walmart store, then it’s likely the customer will do some incremental shopping there too.”