Coverage: Wal-Mart wants to be your bank

Not only does Wal-Mart want to sell you everything under the sun for less, it also wants to be your bank. It’s been rumored for years, but now it looks like Wal-Mart is moving forward with offering checking accounts.

Forbes writer Samantha Sharf had these details about the retailing giant’s latest plans:

Wednesday Wal-Mart and prepaid card provider Green Dot launched GoBank, a mobile-first checking account that aims to serve the nation’s under-banked.

“GoBank is breaking down the barriers to traditional banking and brings the benefits of a FDIC-insured checking account that’s loaded with features to a large segment of Americans,” said Green Dot CEO Steve Streit in a statement. The accounts will have no minimum balance, no overdraft fees will be charged and account holders will gain access to 42,000 free ATMs.

At $8.95 a month (plus $2.95 for a “starter kit” purchased at a Walmart store) GoBank is not the cheapest checking account around, but the monthly fee will be waived for customers who set up a direct deposit of $500 or more. According to Streit an independent Bretton Woods study found that customers pay approximately $218 to $314 annually for a basic checking account. That means even folks paying GoBank’s monthly fee ($107.40 annually) should come out ahead.

Tess Stynes wrote for The Wall Street Journal about some of the benefits Wal-Mart is planning to offer through its new service:

In addition to touting lower costs, the GoBank mobile checking service will provide access for customers that may not typically have access to banks. GoBank won’t use credit scores in determining eligibility, but it instead plans to use its own proprietary underwriting methods to allow just about any customer that passes ID verification to open an account.

The accounts won’t have a minimum balance requirement or overdraft fees. A monthly membership fee of $8.95 will be waived for qualified customers with direct deposits of at least $500 a month. The accounts will include mobile features such as the ability to instantly send money via email or texting and come with a linked MasterCard Inc. debit card.

Writing for The New York Times, Hiroko Tabuchi and Jessica Silver-Greenberg pointed out that under-banked consumers typically pay more fees:

Consumer advocates say that many people without checking accounts are forced into the financial hinterlands, where they have little choice but to turn to costly alternatives for basic transactions. Fees for these services can quickly add up, making saving even more difficult.

In an uneven economic recovery, Walmart is also pushing to win back customers it is losing to lower-price retailers, from T.J.Maxx to dollar stores like Dollar Tree and Family Dollar. On Tuesday, the NPD Group, a market research company, said dollar stores were seeing the largest increase among brick-and-mortar retailers.

“Their core consumer, the lower-end consumer, is faring disproportionately poorly in the overall economy,” said Faye Landes, retail analyst at Cowen, an investment management group. “So anything they can do to get them back from the dollar stores and back in their own stores makes total sense.”

Walmart has been eyeing financial services for some time. Two years ago, the company announced a partnership with American Express to offer a prepaid card and debit accounts. Retailers like Target and 7-Eleven also offer prepaid cards.

Fortune writer Laura Lorenzetti said that access to banking continued to get harder for with the weakest credit:

Since the recession, many banks have tightened standards for banking services, thus limiting access for those with weak credit. Nearly 10 million U.S. households to not use a bank, according to the Federal Deposit Insurance Corporation.

Walmart tried to become a deposit-taking bank, but the industry uproar forced the company to abandon its plan in 2007. The retailer has since been putting together a series of financial services that don’t require a federal bank charter, such as its low-fee money transfer service launched in April and pre-paid cards in partnership with American Express launched two years ago.

Walmart’s new GoBank, the company’s first foray into full-service checking, is intended to fill the gap where traditional banking fails. It will not use a credit bureau rating to determine eligibility, as is typical with most checking accounts, instead potential customers only need to pass ID verification.

E. Scott Reckard and Shan Li wrote for the Los Angeles Times that some industry analysts think the move is an important one for the retailer’s future profitability:

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.

There are many under-banked citizens who are looking for cheaper ways to manage their money. The Wal-Mart brand could inspire confidence or the lack thereof. It will be interesting to see what regulations it will have to follow – either as a bank or not. What is certain is that this is a new twist for traditional banks, but it will remain to be seen if it catches on.