It is always a humbling experience learning how much you don’t know. An article in yesterday’s Wall Street Journal about Wal-Mart’s plans to expand the number of its stores offering “bank-like services” really knocked me down a peg or two. I can’t recall that I’ve ever been in a Wal-Mart (and what does that say about me?) so I wouldn’t have been aware that some of their stores have what they call “Money Centers.” Places where people can cash checks for a nominal $3.00 fee; obtain pre-paid Visa Debit cards; pay bills and transfer money, all without having to have a bank account.
According to the article, government estimates 25% of U.S. households are essentially “un-banked.” The president of Wal-Mart Financial Services is quoted as claiming that banks are really not interested in this customer base and that they see a lot of space to “service customers’ basic financial needs.” She goes on to say that these money centers do three to five million (that’s million) transactions every week! Talk about “banking on the poor.”
In going through the Wal-Mart Money Center web sites, I came across another company I have never heard of that offers a product called Green Dot MoneyPak. Green Dot’s stated mission is “to be the leading provider of financial services to the large community of Americans underserved by traditional providers” (i.e. banks). Green Dot MoneyPak cards, which come with either the Visa or MasterCard logo, can be purchased at a number of retail outlets such as Walgreens, Radio Shack, K-Mart and 7-Eleven.
The charge for “opening an account” (buying the card) is $4.95. Re-loading the card is free with direct deposit or cost $4.50 per transaction. Up to $500 can be loaded at one time so this amounts to less than a 1% commission. Like the Wal-Mart Money Card, these are essentially cash top-up cards that individuals can use to store value (cash) until they need to use it anywhere Visa or MasterCard is accepted. They can also be used to fund PayPal accounts to enable on-line purchases and pay bills.
When I enquired at a local Walgreens I was told they do not require any identification for purchasing the Green Dot product with cash. The cards can be registered to ensure against loss and this may require standard government identification. Companion cards can also be purchased so funds deposited by one party can be withdrawn by another. Both Wal-Mart and Green Dot work with MoneyGram to effect money transfers both domestically and internationally.
So the question is: do these products provide the poor with access to bank-like services at a reasonable cost and convenience? They certainly provide a way for the poor to convert their cash to virtual funds and this is a big step in gaining access to payment type- financial services. Storing money on cards is certainly safer than carrying cash and the ability to remit funds to another party, say a family member in another state or country safely and at a reasonable cost, also seems of great value.
Wal-Mart and Green Dot do not have banking licenses so they cannot make loans or provide savings accounts. But they do seem to have scalable access to the un-banked working poor. Perhaps this infrastructure could be partnered with MFIs to provide working capital micro-loans and/or with banks or credit unions to provide access savings accounts? I think it is an idea worth exploring.
Well, it beats payday lenders hands down. I worked for a major bank for 19 years (as a computer tech) and I never did understand why the majors aren't interested in providing this service, or something like it, themselves. If Walmart is doing it, it means it's possible to make money off it. I think the difference is that Walmart is comfortable with a 1-2% profit margin and the banks want to make more than that.
ReplyDeleteWhat you have found is the PrePaid Card Industry. There is a lot going on here besides gift cards hanging on end-cap aisles and in-store card malls. $200 billion in preload in 2009. The financial services play here for Wal-Mart is not evil. These prepaid cards can be useful as budgeting tools and as access tools. The "banklike" services are minimal, but the reload factor makes it a fundable debit card. Simple. Effective.
ReplyDeleteHedera,
ReplyDeleteThanks for the comment. Not to defend the banks (because I believe there is much they could and should be doing to help the poor) but they have a heavy bias for "cross-selling" financial products and there isn't much they can cross-sell to the poor at a profit. Wal-Mart on the other hand welcomes the poor to shop in their stores. Providing this minimal, though important financial service, no doubt increases sales in their stores. Making money on the financial services is icing on the cake. Nevertheless, they have build a good service for the poor and perhaps this infrastructure could be put to wider use by other entities trying to more directly impact the lives of the poor.
Hey 20/10 Sales Dog!
ReplyDeleteThanks for the comment. You are absolutely correct. While I have been aware of the pre-paid card product for some time, I had no idea how big it is and had given little thought as to how it could be used to more effective help the poor. Probably what's needed now is an effective educational campaign to help the poor understand how these cards can (and should) be used as budgeting and access tools.