Wal-Mart Admits Defeat on Banking Proposal

March 16, 2007 — -- Wal-Mart today announced that it has decided to end its quest to open an "industrial loan company," or ILC, a move that would have allowed the nation's largest retailer to process its own credit and check transactions and save potentially millions of dollars in fees that it currently pays to third-party vendors. While Wal-Mart insisted that it would use the ILC only for this purpose, critics said the retailer would use the loan company to open banking branches in stores.

When other companies like Target and GM sought ILC approval, their applications did not cause controversy. Wal-Mart's July 2005 application, however, united bankers, labor unions and many in Congress and led to the the first-ever hearings by the Federal Deposit Insurance Corp. into whether or not it should approve the application from Wal-Mart and provide insurance for its ILC.

Wal-Mart Financial Services President Jane Thompson said in a press release today, "Unlike dozens of prior ILC applications, Wal-Mart's has been surrounded by manufactured controversy since it was submitted nearly two years ago. At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested -- we simply sought to reduce credit and debit card transaction costs."

The FDIC decided to issue a six-month moratorium on all ILC applications while it examined the issue. Then, when that expired on Jan. 31 of this year, the FDIC again extended the moratorium, this time for a year.

Sheila Bair, chairman of the FDIC, said in a statement today, "Wal-Mart made a wise choice. This decision will remove the controversy surrounding their intentions. They don't need an ILC to play an important role in expanding access to financial services; they can do so by partnering with banks and others. We look forward to working with Wal-Mart in meeting the need for low-cost financial services across all populations."

In July 2005, Avivah Litan, a senior analyst with Gartner told ABC News that Wal-Mart had tried three other times to buy or partner with existing financial institutions. "The other three times, the community banks in Wal-Mart stores fought Wal-Mart from opening banks. Those earlier proposals were more ambitious. This one is more narrow. There are only a few industrial banks in the U.S., about a 100. All this bank would be doing is credit card transaction acquiring."