Bankers Oppose Wal-Mart as Rival(NYTimes, 10/15/05)

October 15, 2005
Bankers Oppose Wal-Mart as Rival
By MICHAEL BARBARO
The letters to federal banking regulators, which poured in at a rate of 20 a day, are a catalogue of fear.
The chief executive of a bank in North Dakota predicted a "dangerous and unprecedented concentration of economic power." The president of a bank in Colorado foresaw "unacceptable risk to the banking system." The head of a California bank anticipated "long-term community disinvestment."
Wal-Mart's proposal to open a bank has sent a wave of concern through community bankers, who view the move as the first of several maneuvers that will turn the company into a financial services behemoth and drive them out of business.
In July, Wal-Mart filed an application with the Federal Deposit Insurance Corporation for an industrial bank in Utah that would process credit and debit card transactions for its 3,500 United States stores, saving the retailer the fraction of a penny it now pays to national banks every time a shopper pays with plastic. It is Wal-Mart's fourth effort to enter the banking industry.
A public comment period for the F.D.I.C. application, which concluded on Sept. 23, produced a flood of letters from community banks and activists and yet another public relations problem for Wal-Mart, which is trying to burnish its image.
The number of letters - more than 1,100 - broke a record at the F.D.I.C., which usually receives no more than six comments on an application. To accommodate the response, it extended the public comment period to two months, from one.
Jane Thompson, president of Wal-Mart Financial Services, defended the company's proposal, saying, "This will not be a bank that a consumer ever sees. It's only customer is Wal-Mart."
But community bankers fear that could change and Wal-Mart would open retail branches. Many bankers say Wal-Mart's move into their cities has hurt the smaller businesses that compete with the store's supercenters, including groceries, auto repair centers and photo processing labs.
A coalition has formed to keep Wal-Mart out of banking and includes the Independent Community Bankers of America (which provided a sample letter for its members to send to the F.D.I.C.), the National Grocers Association, the National Association of Convenience Stores and the United Food and Commercial Workers union, which is trying unionize Wal-Mart workers. A coalition of community groups called Wal-Mart Watch has sent a petition to the F.D.I.C. with 11,000 signatures opposing Wal-Mart's application.
The debate has even reached Capitol Hill, where Representatives Paul Gillmor of Ohio and Barney Frank of Massachusetts, both members of the House Financial Services Committee, have asked the F.D.I.C. to hold hearings. "This is a very controversial application filed by the company that is the largest retailer in the world," they wrote.
David Barr, an F.D.I.C. spokesman, said that if such a hearing was held, it would be the first in 20 years.
The F.D.I.C. is expected to rule on the Wal-Mart application by July 2006. Rejections are rare. Wal-Mart is also awaiting approval from Utah, one of the few states that allows retailers to open industrial banks. The chain plans to locate the bank's headquarters in Salt Lake City.
Wal-Mart has made no secret of its banking ambitions. In 1999, the company tried to buy an Oklahoma thrift, prompting federal legislation that banned commercial companies from buying thrifts and unraveled the deal. In 2001, it attempted to strike a partnership with a Toronto bank to establish branches inside its stores, a plan blocked by the United States government. And in 2002, it tried to buy a bank in California, a transaction thwarted when the state banned such arrangements.
This time, Wal-Mart is trying to avoid those pitfalls by creating an industrial bank with the narrow aim of eliminating the payments it makes to third parties for the roughly 2.4 billion electronic payment transactions it handles every year. The bank will, however, accept limited deposits from nonprofit groups.
"Wal-Mart will not have its own bank branches inside our stores or outside of them," said Ms. Thompson of Wal-Mart. As evidence of the bank's limited scope, Ms. Thompson pointed to the 300 different community banks that already operate in more than 1,000 Wal-Mart stores. "We have long-term arrangements with these banks," she said.
But if the letters to the F.D.I.C. are any indication, community banks still believe Wal-Mart poses a direct threat.
"Wal-Mart is well known for entering a community" and "driving out the local competition," wrote Martin J. Schmitz, president of Citywide Banks of Colorado. The bank proposal, he added, would "pose unacceptable risk to the banking system and its regulatory safety net."