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Targeting the ‘Unhappily’ Banked


Wal-Mart Stores Inc., which has long been one of the country’s most successful retailers, is increasingly moving into the financial services arena, a venture initiated during the tenure of former CEO H. Lee Scott Jr. (2000-2009).

Scott will appear at BAI Retail Delivery 2013 on November 6 in Denver to discuss Wal-Mart’s strategy and approach for interacting and engaging with customers across channels. We caught up with Scott before the conference to ask him about the rationale behind Wal-Mart’s financial services initiatives specifically and what those might portend for the future of the retailing giant – and for the future of financial services.

Q: Wal-Mart recently made a big splash in the financial services arena with its Bluebird product co-branded with American Express. The company’s initial entry into financial services occurred under your tenure. How did that come about and where do you see it going in the future?

Scott: Years ago, a Wal-Mart associate came to us and said that they thought there was an opportunity in serving the underbanked, or nonbanked. This person had looked at the charges  for wire transfers within and outside the U.S., such as to Mexico and Central America, as well as the fees charged by check-cashing companies and thought there was a tremendous opportunity for us to help those customers save money. Since these customers were already in our stores, saving them money on fees should come back to us in sales of more merchandise.

So, it really wasn’t a strategy based on making a lot of money handling these kinds of financial services. While we could make some money, what we were trying to do was increase our sales and strengthen the relationship we had with those customers.

We hired Jane Thompson, who had been at Sears. She put together a group and we started a very aggressive program dealing with the underbanked. It ended up being a wonderful program, profitable for us, but also extraordinarily meaningful to our customers because of the price advantages that we were able to offer. I always find it interesting that when you look at the poorest people in America, historically they have also been the people who have had to pay the highest prices for financial services or for goods and services.

The next generation of Wal-Mart leadership looked at this program and began to focus on not just the underbanked but also the “unhappily banked.” That is, a person who historically utilized free checking and the services that went along with free checking, and now has to pay more as free checking is phased out at most banks. So, Wal-Mart leadership looked for a product that avoids ATM fees and costs very little in other fees if customers use direct deposit.

I don’t have any information on the amount of money that is involved in Bluebird. I know that it is something that has proven to be good for Wal-Mart, although they haven’t marketed it extensively. But from my conversations with the people in charge, I gather that Wal-Mart is pleased with it and it seems that the customer reaction is positive.

Q: Do you think Wal-Mart will try to acquire a bank charter?

Scott: Well, we actually did apply for one once and withdrew it. I think there are actually two relevant questions: one, do you think Wal-Mart will apply for a bank charter and two, do you think Wal-Mart could ever actually get a bank charter?

Politically, Wal-Mart’s previous attempt to get a charter was blocked because of the opposition from the labor organizations that naturally oppose Wal-Mart and the bankers that historically had not opposed Wal-Mart but did so on this particular issue. So, we decided to proceed on a different track at that time. Who knows what will happen? The world is changing now that more and more payments will be done by phone. Wal-Mart and the other retailers will play a role in that.

Q: As you alluded to, you had to deal with outside political forces often during your tenure at Wal-Mart. Banks, of course, face similar pressures in the wake of the financial crisis as regulatory burdens increase across the board. How would you advise bankers to handle those sorts of issues?

Scott: One of the things that I did frequently was get on an airplane and go out and meet people, decision makers for the most part. These are people who could be in Washington, DC, San Antonio or Los Angeles and were concerned about some of the reputational issues that Wal-Mart was experiencing in the press. I talked to these people about the company and what we believed in. I directly addressed their concerns and spent my time trying to be as transparent as possible.

What served us well was simply telling the truth. We knew that we weren’t a perfect company and that we had things we needed to improve. I think the fact that we were open about these issues gave us credibility with people whose initial thought was that they weren’t going to like us.

Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at [email protected].