Move Your Money To... Walmart? A Good Deal?
Thursday, November 10, 2011
This blog has covered extensively the ways banks have "mugged" consumers via higher fees, higher interest rates, traps, and tricks. I was surprised to read in the Tuesday the New York Times a report about some consumers moving their money to Walmart Money Centers, instead of to banks or credit unions. Move your money to Walmart? Really?
After reading the newspaper article, I visited the Walmart Money Centers website to learn more:
By offering several a la carte banking services (e.g., debit card, money transfers, bill pay, money orders, credit cards, check cashing, and checks), Walmart has wormed its way into banking. If it walks like a duck, sounds like a duck, and smells like a duck -- then it must be a duck. How was this allowed to happen?
Apparently, many consumers who don't have a checking account (e.g., referred to as the "unbanked") are using Walmart Money Centers to cash they paychecks, since the fees are lower than at many banks. I have mixed feelings about this. Here's why:
- It benefits consumers to have a competitive choice since Walmart Money Centers offer lower check-cashing fees than banks and payday lenders. That could create a downward pressure on banks to lower their fees to remain competitive
- I see the benefit to Walmart of paying its associates via Walmart debit cards. This removes or lowers the middle-man processor costs
Now, the disadvantages.
First, "banking" with Walmart is still very expensive for consumers. A $3.00 fee to cash a $800.00 weekly paycheck is really an effective annual interest rate of 19.5% ($3/$800 x 52 pay periods per year). That same $3.00 fee on a $400 weekly paycheck equals a 39% effective annual interest rate.
The Walmart MoneyCard (e.g., debit card) is expensive, too. The $3.00 fee to load money onto a card, plus the $3.00 monthly maintenance fee is really an effective annual interest rate of 18% (assuming a $300 paycheck and 26 pay periods per year). So, a consumer is paying 18% to access their own money. What? That 18% is a rate similar to many credit cards, where a consumer can avoid the interest charges by paying their balance in full at the end of the month.
While Walmart Money Centers may seem like an attractive option, it's really expensive "banking." Better to find a credit union with free checking and save both the $78 in annual check-cashing fees and $108 in annual debit card fees.
Second, I can understand the benefits for Walmart of paying its associates via Walmart debit cards. The benefits for Walmart Associates are questionable at best, given the above debit-card fees. The lack of banking choice is troublesome:
"Walmart associates may receive their pay either by direct deposit or through the First Data Money Network program and may access their wages through the Money Network MasterCard Paycard(R) or Money Network(TM) Checks."
This reminds me of the old "company store" practice from the 1800's where companies forced their employees to shop only at the company store, and kept them in debt bondage -- only it's worse today. How? Keep reading.
Third, the lack of disclosure and transparency is extremely troubling. If a consumer left Bank of America for a Walmart Money Center, then you are still banking with some of the same companies that perform outsourced, back-office financial transactions. According to a 2009 Reuters press release:
"Walmart, MasterCard Worldwide and First Data today announced a new, more sustainable payroll program designed to reduce the number of paper paychecks and pay stubs distributed each year to Walmart and Sam's Club associates... "
Alert readers will remember that First Data is a joint venture partner with Banc of America Merchant Services to process BofA debit card transactions. When I asked Bank of America to explain this joint venture, they declined to comment. And, there's more.
Wal-mart operates its Money Centers by outsourcing functions to Moneygram. According to Hoovers, Moneygram:
"... sells MoneyGram-branded cash transfers and money orders at some 227,000 locations around the globe. It is the leading provider of money orders in the US, issuing some 175 million annually. Wal-Mart is MoneyGram's largest money-transfer and money order agent, accounting for more than a quarter of the company's revenues. MoneyGram also offers in-person and electronic bill payment services, letting users pay everything from mortgages to utilities, and processes official checks for financial institutions."
In September, Fitch Ratings announced in a press release:
"MoneyGram has been informed that it is being investigated by a federal grand jury in connection with its consumer anti-fraud and anti-money laundering program matters for the period 2004 to early 2009. A prior similar investigation led to MoneyGram paying an $18 million fine..."
Thomas H. Lee Partners and Goldman Sachs own about 85% of MoneyGram.
Fourth, I thought that Walmart was prohibited from banking. The New York Times reported:
"Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it."
Fifth, the fine print about the Walmart MoneyCard states the following about its debit card:
"The Card is issued by GE Money Bank, member FDIC, pursuant to a license from Visa, U.S.A. Additional services provided by Green Dot Corporation. Not available in all states. Issuance fee, monthly fee, and other fees apply..."
This means that Walmart outsources its debit card operations to GE Money Bank, where cardholders' money and accounts are insured by the Federal Deposit Insurance Corporation (FDIC) which insures banks. So, the FDIC is effectively insuring Walmart! I'll bet you didn't know that. Neither did I until I read the fine print. How did this happen?
I hope the New York Times reports more about all of this.
My main point: if consumers choose to "bank" at Walmart Money Centers, you should know who you really are doing business with. The Walmart brand name appears the retail stores, but several outsourced companies actually process its financial transactions -- just like the big banks.
Me? Walmart Money Centers do not appeal to me for both the reasons above, and plus several Walmart business practices. Hence, I have boycotted Walmart since 2000.
What do you think? Are Walmart Money Centers a good option? If you have moved your money to Walmart, share your experiences.
Walmart huh? I would have never thought of that, or even heard about it were it not for this post. I can see this becoming huge.
Posted by: Credit Card Payment Processing | Thursday, December 08, 2011 at 02:54 PM
I don't see the big deal on them as far as working for Wal-Mart is concerned. If you are an Wal-Mart Associate then you don't have those maintenance and deposit fees, so whatever goes in is what you get out. Its nice to have an interest free & safe card to keep some extra cash.
Posted by: Superman | Wednesday, January 04, 2012 at 01:59 PM
Yes, companies should have the freedom of choice in how they pay their employees (e.g., paper check, direct deposit, paycard). So too employees should have freedom of choice in both how they are paid and where they bank. My concern is that payroll payments by paycard allows the employer, and not the employee, to decide upon the bank (and associated ATM network). When this happens, the employee has lost their freedom of choice. You do want to retain the freedom to bank where you choose, don't you?
Banks have targeted paycards at consumers who don't have a bank account. Historically, these consumers have used high-fee banking services, like payday loans. I don't see the paycard solutions lowering the costs of banking, but instead the bankers are crafting new distribution agreements which discretely embed banking fees and allow employers to choose the bank for their employees instead of employees keeping their freedom of banking choice.
Freedom can be easily lost when you consider the details of paycard/debit cards. Banks can easily apply a variety of charges to paycard users, beyond the monthly maintenance and deposit fees waived. What's free today can easily become a fee tomorrow. And, out-of-ATM-network fees could easily be hiked, which forces employees into a particular bank -- not necessarily the bank of their choice.
To learn more, read this:
Bank of America Merchant Services And Money Network Announce New Payroll Solution
Then, return to this page and re-read the above blog post. Employees and consumers should closely inspect the schedule of fees and policy documents for paycard/payroll debit cards, just as they would before registering for a tradition bank account.
Posted by: George | Thursday, January 05, 2012 at 10:52 AM