Bankers who advise the Federal Reserve Board are urging the Fed to block Walmart (NYSE:WMT) from offering payment-related services, according to Bloomberg.
The bankers want regulators to limit payments to "regulated banking institutions," they said in the minutes of a Dec. 19 meeting. The news agency obtained the minutes this week under the Freedom of Information Act.
According to the minutes the 12 bankers, who have been appointed to the Federal Advisory Council by members of the Fed, particularly expressed concern about Walmart and the Bluebird prepaid card it offers in conjunction with American Express (NYSE:AXP). However, banks have been fighting for years to block Walmart from providing financial services—and they may also be worried about the Merchant Customer Exchange (MCX) replacement for payment cards that Walmart is spearheading among retailers.
"Wal-Mart has sought to enter banking formally for over a decade," unidentified bankers said at the December meeting. "Faced with opposition, Wal-Mart now appears to have entered banking through the back door, without the regulatory framework that applies to banks." A Walmart spokesperson said the retailer's financial products are properly regulated.
Bankers at the meeting also suggested that Walmart is part of a "shadow banking" system that provides check cashing, bill payment, money transfers and other financial services outside of traditional banking. "Regulators should ensure that there is a level playing field for all financial intermediaries to make sure that risks are properly monitored and regulated," the group wrote.
Considering that most grocery chains also allow customers to cash checks and Starbucks runs millions of transactions every week through its own non-cash payment service, "shadow banking" doesn't appear all that shadowy. But it's clear the bankers are mainly concerned about Walmart.
That's probably with good reason—every other retailer is also looking over its shoulder at Walmart—but in the bankers' case it's rather transparently self-serving. Non-cash payments are highly profitable, and in the case of payment cards, the interchange bite comes out of retailers' margins. The excuse for that bite is risk, but without competition there's no motivation for banks to reduce risk and thus cut interchange rates.
Walmart isn't alone in challenging that monopoly. Tesco and Sainbury's in the U.K. own their own banks, and Target (NYSE:TGT) and other large chains have signed on for the MCX project to circumvent traditional interchange by cutting Visa (NYSE:V) and MasterCard (NYSE:MA) payment cards out of the payments loop—along with the banks that issue those cards.
No wonder those 12 bankers are complaining to the Fed—and no wonder they wanted to keep their complaints under wraps for months.
- See this Bloomberg story