Many Wal-Mart locations around the country now have Money Center departments. These developments create an incredibly convenient way to take your paycheck into the store, have it cashed at the Money Center, and use your cash for your shopping trip. With Wal-Mart’s trend to become a one-stop shop for all household needs, including groceries, each Wal-Mart location is becoming its own small mall — or even village.
The Wal-Mart Money Centers are not full banks. They offer check cashing services, bill payments, outgoing wires, and reloadable debit cards. There are no checking accounts or savings accounts. Wal-Mart abandoned its plans to become a bank, and in doing so, is able to offer certain financial services while not being held to the same regulations as Chase, Bank of America, or your local bank branch. On the spectrum of financial institutions, Wal-Mart Money Centers are closer to establishments like payday loan companies and check cashing storefronts, who charge high fees and cater to lower-income communities and the unbanked population, than the centers are to banks.
Check cashing fee. The good news is that the fees for cashing your paycheck or government check are generally much lower than the fees at shadier establishments. At the Wal-Mart Money Center, you can cash your check for a 1 percent fee with a maximum fee of $3. Of course, you can cash your checks for free at a bank.
Prepaid debit card fee. The fee to reload and maintain your prepaid debit card is lower than fees for prepaid debit cards elsewhere. Wal-Mart uses GreenDot prepaid debit cards, but at reduced rates of $3 to load and $3 per month to maintain. This is a system designed to charge people with low credit scores or a poor history with banks fees to use their own money. These are fees that middle-income banking customers doesn’t need to pay, particularly now that big banks have backed away from charging monthly debit card fees.
According to Wal-Mart’s own survey, 60 percent of the customers using the Money Center have bank accounts. These customers are most likely more interested in the convenience, and willing to accept the fees in exchange for getting access to their money at the same location they shop. The remaining 40 percent must be the reason Wal-Mart chose to offer its own check cashing service rather than extending a potentially lucrative contract to a bank that could theoretically operate a branch in every Wal-Mart location.
Are these new services good for the people of Wal-Mart? I’m having trouble finding a significant drawback. I believe it would be better if Wal-Mart were to offer more traditional banking services, but this system is more profitable. The temptation to spend more money when you receive cash from your employer’s paycheck in the store where you’ll be spending money could be an invitation to spend more than necessary, but if you’re spending with cash, at least you’ll be limited to spending only what you have on hand. At the same time, Wal-Mart’s Money Centers offer a better choice than payday loans and check cashing storefronts for lower-income families or the 40 percent of customers who do not have bank accounts, and could possibly help these households transition to a bank in the future.
I do not see Wal-Mart centers as an alternative to banks for most existing banking customers. There is anger towards Wall Street and the banking system, and initiatives like Bank Transfer Day encourage people to move away from the big banks towards credit unions and community banks. The Wal-Mart Money Center is not a replacement for a big bank, and moving a family from managing finances through a bank to managing finances on an all-cash basis through an outfit like these could be detrimental to long-term financial stability.