Wal-Mart announced today that it plans to offer a prepaid, reloadable Visa debit card as part of a plan to expand the financial services it offers to its customers, millions of whom do not have a basic banking or checking account.
The new debit cards are called MoneyCards. While not a checking account, MoneyCards will act just like one, allowing shoppers to use the debit cards wherever VISA cards are accepted.
Instead of paying by cash or money orders, customers can use the MoneyCards to pay electric bills, buy gasoline or shop for groceries.
Shoppers will pay an initial onetime fee of $8.94 to purchase the card. Then, each month, card holders will be charged a monthly maintenance fee of $4.94.
Wal-Mart will waive that fee if card holders deposit a least $1,000 each month into the card account at a Wal-Mart store or at a Green Dot location or through direct deposit of their paychecks. Wal-Mart said that the average weekly paycheck it cashes is $350. The company estimates that one out of five of its customers do not have a checking account.
The world's largest retailer partnered with GE Money -- a division of General Electric Co.-- Visa and Green Dot to offer the debit card. Wal-Mart plans to roll out the card in 1,300 stores by the end of June and expects it will be available nationwide by the end of the year.
Customers will have to pay extra fees to add additional funds, but that can be waived if customers sign up for direct deposit or if they deposit checks cashed at Wal-Mart directly into the MoneyCard account.
The deposited funds are insured by the Federal Deposit Insurance Corporation and card holders will not be responsible for unauthorized purchases made on the card if it is lost or stolen.
According to the Financial Service Centers of America, a trade group representing over 6,500 businesses that provide services such as check cashing money orders and wire transfers, prepaid debit cards have been popular choices for those consumers outside of the traditional banking system.
Many of its members offer the NetSpend All Access card for a onetime fee of $9.95, though a spokesperson with the trade group told ABC News that some businesses waive the fee.
More Than Just Groceries
The nationwide roll-out of the MoneyCard was part of a larger announcement the company made about its financial service offerings.
Wal-Mart said today that it would expand its MoneyCenters from 225 locations to 1,000 by the end of 2008. These stand-alone centers have the look of traditional retail banks and are usually found near the entrance to the stores. They offer services such as check cashing, money orders, bill payments and money transfers.
In a statement, the company said, "The rapid expansion of its low-cost money services and in-store locations will help meet the needs of the millions of unbanked and underserved customers who visit Wal-Mart each week for their basic money service needs."
Already, more than 2 million customers use Wal-Mart's existing money services each week. The company said it saves shoppers who use all of its services $450 a year compared to fees charged by competitors. For example, Wal-Mart said it charges 66 cents for bill payments, compared to $1.00 competitors charge.
The Financial Service Centers of America welcomed the news. "We are always very happy to learn of any organization that is prepared to offer financial services to unbanked and underbanked consumers," said Cynthia Vega, a spokeswoman for the group. "We greet that as good news."
But her group does have concerns about Wal-Mart, a retailer, offering financial services.
"This is our core business," she said. "When cashing checks is not your primary business, but selling light bulbs and dog food is, there is going to be a learning curve. Your staff is learning how to do different things and is not focusing on getting check cashing customers in and out of store as fast as possible. The priority is to keep people in store so they spend money. This is our business, to serve folks."
Wal-Mart spokesman Nick Agarwal told ABC News that the MoneyCards were about giving people the ability to manage their money better. "The card will give customers the ability to spend their money where they like, in or out of Wal-Mart."
Banking On Future Growth
Wal-Mart has been quite open about its plans to expand into the financial services sector and offer products to the millions of customers who shop at Wal-Mart each week. The company said it has seen 30 to 40 percent annual growth in this sector, good news for the retailer which has struggled recently with its sales at stores opened for more than a year.
But the push to offer more banking products has not always been easy.
Earlier this year, the company withdrew its application to open a specific type of bank that would allow the company to avoid paying fees to third party vendors for every credit and debit card transaction after vocal and organized opposition from banks, unions and other critics.
That setback did not deter the company's plans to offer more financial products such as the MoneyCard.
And while officials would not comment about future plans to provide even more services such as home loans, people familiar with the company's strategy said the overall goal is to help its customers fulfill "the American Dream." "That's our goal," said Linda Thompson, president of Wal-Mart financial services, "to help our customers prepare and save for the future by giving them access to greater financial opportunities."