In a glowing profile that is sure to leave many of its readers grumbling, American Banker named Jane Thompson its ‘innovator of the year’ for 2011 because her work with Wal-Mart Financial Services. According to the article, under Thompson, Wal-Mart Financial Services made “many hundreds of millions of dollars” providing financial services to people without bank accounts or who are underbanked.
Jane Thompson is not a banker. But during her nine years running Wal-Mart Stores Inc.’s financial services unit she did more than any single bank or banker in the country to develop and sell affordable financial products to low-income customers.
She did so while lowering the often predatory prices that consumers pay for cashing their paychecks, sending money to relatives and buying debit cards that can be used without checking accounts. Wal-Mart managed to make a significant profit on these services, despite the conventional banking wisdom that there is little money to be made from low-income customers.
Moving beyond the hagiography for moment, it is important to put Wal-Mart’s success in the proper perspective. When the financial services business started, it had a built-in distribution channel of thousands of stores and was likely not on the hook for those costs. In addition, the development of free checking brought a lot of affordable financial services to low-income customers. The issue is that low-income people are increasingly being viewed not only as ‘unbanked’ or ‘underbanked’ but also as ‘unbankable.’
Traditional bankers have been generally uninterested in courting people who do not have or regularly use bank accounts: Because these customers generally do not have much money, the thinking goes, they are unlikely to be very profitable.
It is worth noting that in the grand scheme of things, Wal-Mart Financial Services only offers a relatively low-cost way to conduct transactions to those reliant on alternative financial services like money orders and check cashers. It is still limited to transactional services, offers no lending, and does nothing to help people build assets or credit. Its goal in providing financial services is to get people to shop in Wal-Mart stores by providing them a way to turn their paychecks into forms of payment that are more fungible. Whether banks look to redevelop those parts of their business and move beyond transactional-based measures of profitability remains to be seen.