By offering low-fee checking accounts, Walmart dares to go where most big banks won't. Few major financial institutions are willing to give lower-income Americans checking accounts these days -- without exorbitant fees.
But, unlike the big banks, Walmart really needs low-income customers.
The retail goliath on Wednesday announced it would offer customers checking accounts with no minimum balance and no fees for overdrafts or bounced checks. Those who get a direct deposit of at least $500 every month -- a floor that includes many people receiving government benefits -- will have the $8.95 monthly fee waived.
The decision to introduce the checking account, which will be available by the end of October, came after hearing from customers that “traditional banking fees are just too high,” said Molly Blakeman, a Walmart spokeswoman. “We think that our customers have a need there and we’re looking to help them fill that."
Walmart’s core customers -- low-income Americans -- have been squeezed by government benefit cuts, high unemployment and stagnant wages.
The new checking account may offer some relief by cutting the cost of financial services, like paying bills and cashing checks. That also could free up money for people to spend at Walmart.
“It should help them if they are able to save the fees that they’re currently experiencing,” said Ken Perkins, the founder of Retail Metrics, a research and data firm. “That’s a chunk of their grocery bill that month.”
Walmart needs that money. Sales at U.S. stores open a year, an important retail metric, have been flat or negative for six straight quarters. Food stamp cuts in November hurt the company's bottom line, executives said.
Walmart has been pushing for several years to get into financial services. The company offers check-cashing, bill-pay and a prepaid debit card. The retail giant also houses independent bank branches in some of its stores.
In the mid-2000s, Walmart tried to get a federal bank charter so it could take deposits, a move widely opposed by the banking industry at the time. This new effort differs in that the services are provided through Green Dot Bank, but exclusively available at Walmart. To open an account, customers must buy a $2.95 starter kit from a Walmart store.
In recent years, traditional banks have shied away from lower-income people without traditional bank accounts -- "the unbanked and underbanked," who make up nearly 10 million and 24 million households in the U.S. respectively, according to the Federal Deposit Insurance Corp. Because banks can’t make much money off accounts with low balances, “they’re trying to repel these accounts with high fees,” said Mehrsa Baradaran, a professor at the University of Georgia’s School of Law who studies the unbanked.
Fewer than half of lower-income households are fully banked, according to a 2012 survey from the FDIC. That means they’ve recently used alternative financial products, like payday loans or check-cashing services, which typically charge high fees.
Some big banks have launched accounts similar to Walmart's recently. Bank of America has a SafeBalance account, with a monthly fee of $4.95 and no overdraft penalties. Citibank's Access Account, introduced Tuesday, has a monthly fee of $10 that can be waived if customers make one monthly bill payment or direct deposit, or if they average a monthly balance of $1,500 or more. The Citibank account doesn't charge overdraft fees, either.
That Walmart is one of the few options available to poor customers looking for a cheap bank account is troubling, given the retailer's profit motive, said Wallace Turbeville, a senior fellow at Demos, a progressive think tank. Unlike the Post Office, which some have considered as an option for low-fee checking, there's no reason for Walmart and its partner bank not to take advantage of customers who have so little bargaining power, he said.
“There’s a huge number of people that are underserved or overcharged for financial services,” Turbeville said. “That suggests that its going to be profitable for Walmart.”