Will Wal-Mart Try To Get Into Mortgage Banking?

[u]BLOG VIEW:[/i][/u] There appears to be a good deal of buzz on the Internet about the possibility of Wal-Mart getting a foothold in the banking industry.[/b] It has certainly been a long time coming, despite the best efforts of the financial services world to keep the mega-retailer away. Wal-Mart has been chasing after a banking license for the past decade. Its last attempt was in 2007, when it tried to secure a charter as an industrial loan corporation. The Federal Deposit Insurance Corp., responding to the hue and cry from a hostile banking industry, effectively stalled Wal-Mart's charter application for so long that the company took the hint and glumly withdrew its request. Three years and a recession later, Wal-Mart is back at our doorstep. In June, the retailer's Sam's Club subsidiary began offering small business loans through an online program with Superior Financial Group. And there is every reason to believe that the program will be a hit: In November 2009, Sam's Club issued a survey that said nearly 15% of its business members reported being denied a loan by banks to helps that would have helped their operations. Also in June, Wal-Mart took an equity stake in Green Dot, the company that manages Wal-Mart's prepaid debit cards. Green Dot has its own interest in banking and is currently seeking regulatory approval to acquire a tiny community bank in Utah. Of course, many U.S. shoppers already do their banking at Wal-Mart via in-store branches operated by SunTrust. Elsewhere in North America, Wal-Mart is a banking presence: the company has operated a Mexican bank since 2007, and it received a Canadian banking license in May 2010. To date, the company has denied that it is going to seek a bank charter. But in all seriousness, there isn't a better time for Wal-Mart to attempt an entry into the banking industry. Considering the rising number of failed banks and the continuing turmoil facing the financial services world, the relatively stable and deep-pocketed Wal-Mart is in a position to seek an opening and follow through. But does mortgage banking industry need to fear having a Wal-Mart Bank with real estate lending as part of its product lineup? I suspect that this will not be an area where the mega-retailer is going to pursue. For starters, home loans and commercial real estate loans do not fit into the Wal-Mart target focus. Its consumer outreach has strictly been along the lines of debit cards, money transfers, bill payments and checking cashing services. The notion of Wal-Mart getting into jumbo mortgages or reverse mortgages, let alone the standard 30-year fixed-rate loan, is a stretch. But what about those Sam's Club business loans? Well, those loans are on the smallish side – ranging from $5,000 to $25,000 – and they are being marketed solely to existing customers. The tumult in the commercial real estate sector is not an attractive environment for a de novo lender that is eager to gain market share as quickly as possible. Even when the economy recovers, the challenge of getting started in today's mortgage banking industry will be daunting for a company with no previous experience in this area. I would suspect that a Wal-Mart Bank would concentrate on other consumer products that would attract a large quantity of customers who either lack banking accounts or are being squeezed by the fees that their banks are charging. The easiest way to achieve that goal is through low-fee or even no-fee checking accounts and debit cards, not through residential and commercial real estate financing. My advice to the mortgage bankers is to not worry about Wal-Mart as near-term competition. Six-digit home loans or seven-digit construction loans are out of the question – that doesn't fit the Wal-Mart modus operandi at this point in time. – Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b] [i] (Please address all comments regarding this opinion column to hallp@sme-online.co


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