Wal-Mart Redefines 'One-Stop Shopping'

By DAVID MOON, Moon Capital Management
May 14, 2006

Have you heard of Eaglemark Savings Bank? Most banks hope you haven't ' not because they don't want you doing business there, but because Eaglemark exemplifies a precedent that damages the current arguments against Wal-Mart's plan to enter the banking business.

A 1930s law prompted by depression-era bank failures generally separates the retail and banking industries. The law's purpose is to protect the solvency of banks from the more volatile operating results of the retail industry.

When Wal-Mart announced last year that it was interested in chartering a bank in Utah for the purpose of processing credit card, debit card and electronic check transactions, the anti Wal-Mart forces rallied. Retailers, community bankers, union leaders, credit unions and a host of miscellaneous Wal-Mart haters gathered forces to oppose the effort by the Bentonville, Ark.-based retailer.

Some of the critics cite the federal prohibition against bank and retail co-ownership. Many ' perhaps most ' fear that Wal-Mart will flex its titanic competitive muscles on their turf. Some people simply don't like Wal-Mart. Steve Verdier, senior vice president of the Independent Community Bankers of America, says his group opposes Wal-Mart's charter mainly 'because it's Wal-Mart. The way they operate is pretty aggressive.'

Community bankers don't want to aggressively compete? Or do they simply not want others to aggressively compete with them?

Ronald K. Ence, another vice president of the Independent Community Bankers of America (banks have lots of vice presidents), says he is worried that Wal-Mart might operate a lending business the same way it does its traditional retail business. That is, it would charge sharply lower interest rates on auto, home and other loans.

Can someone please explain the problem with this?

Wal-Mart is already tiptoeing into financial services. SunTrust operates a number of bank branches, labeled Wal-Mart Money Centers by SunTrust, within Wal-Mart supercenters.

How does Eaglemark Savings Bank fit into this? Eaglemark is wholly owned bank subsidiary of Harley-Davidson. Like General Electric and a host of other companies, Harley-Davidson has a federal exemption allowing it to own and operate a retail bank. Approval of those exemptions was historically perfunctory' until Wal-Mart wanted one.

Over the last 35 years Wal-Mart has driven down prices in previously fragmented and inefficient segments of the retail market. Consumers can decide if lower banking prices are worth the loss of a small-bank feel. To paraphrase Yogi Berra, if people don't want to bank at Wal-Mart, no one can stop them.

I understand that banks would rather not compete with Wal-Mart, but their best strategy may be an attack in the marketplace, not the courtroom. Sears tried to become America's financial supermarket and failed, because other firms, many of them very small, offered consumers better service, products and delivery systems, although often at a higher price.

Price may not be one of them, but there are plenty of ways for small community banks to successfully compete with Wal-Mart.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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