Wal-Mart made news last month when it announced an expansion of its check-cashing and money order services and the rollout of a prepaid debit card for its customers. At first blush, this sounds like good news for consumers since Wal-Mart estimates that its fees would be about 25 to 50% lower than its competitors'.
Unfortunately, Wal-Mart's new financial services may have an adverse consequence–perpetuating low income individuals' reliance on basic money-handling services while doing very little to advance financial literacy, establish a formal relationship with a financial institution or truly help promote prosperity. For the millions of Americans who are unbanked, does Wal-Mart offer a path toward financial independence, or simply a less expensive way to remain outside the mainstream banking system?
Wal-Mart itself acknowledges that it is targeting low-income and underserved consumers with its prepaid MoneyCard and up to 1,000 in-store MoneyCenters by the end of 2008. "Wal-Mart MoneyCenters will assist customers who are outside mainstream banking with convenient, nationwide access to low-cost money services, including check cashing, money orders, bill payment and money transfers," according to a statement issued by the company on June 21.
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Over the last few years, Wal-Mart has made no bones about its desire to enter the financial services market–in a big way. Wal-Mart has said that this latest offering is but the first of many other financial services it plans to roll out in the future. Let's not forget that as recently as last year, Wal-Mart withdrew its application for an industrial loan company after the Federal Deposit Insurance Corporation received a record number of comment letters. Perhaps Wal-Mart's latest strategy is to acquire in a piecemeal fashion what it could not accomplish through an ILC. But if that is the case, who is looking out for the underserved individuals who are the most likely customers for these basic services, customers who would undoubtedly be better served by credit unions if they were only aware of the alternatives?
A recent Washington Post article stated that nearly 28 million people forego traditional financial institutions. According to the article, they tend to be Hispanic, African American as well as low-income and young. While individually they may not portend great wealth, as a group they hold great potential.
The Michigan Minority Business Development Council recently reported that African Americans, Asian Americans and Hispanic Americans collectively control 18% of the nation's disposable personal income. Moreover, based on U.S. Dept of Commerce, Minority Business Development Agency data, minority purchasing power may surpass $2 trillion by 2015, $3 trillion by 2030 and by $4 trillion by 2045.
Credit unions are in a perfect position to assist these individuals. Obviously, serving the underserved is an integral part of our mission, but it also makes good business sense–and it's good for the respective communities credit unions serve.
Credit unions have proven time and again that they not only deliver better rates and lower fees than those charged by commercial institutions, but they also offer services designed to meet their members' unique needs, whether that's financial education, Spanish-language materials, payday loan alternatives or innovative first-time homebuyer programs. In fact, credit unions just last year gained authority to provide check-cashing and money transfer services to anyone in their field of membership. This change in the law allows credit unions to assist individuals who otherwise would pay high fees at check-cashing outlets, but more importantly it provides a means for credit unions to establish a relationship with someone who may not have ever had a formal relationship with a financial institution. What a wonderful opportunity for credit unions to demonstrate the value of being a member!
There are many examples of credit unions that have stepped up to the plate to lead the way in better serving their members or potential members. One that comes to mind is Alternatives FCU in Ithaca, N.Y., where long-time, and recently retired, CEO Bill Myers pioneered the "Credit Path" model of financial empowerment that so many credit unions have emulated. Another credit union that is often touted in NAFCU's neck of the woods is Shiloh FCU in Alexandria, Va., which has teamed up with Fannie Mae to provide up to $5,000 in closing costs and down payment assistance to qualified individuals to finance a first home purchase.
In addition, numerous larger credit unions have partnered with community development credit unions. Navy, Pentagon, Coastal, Visions and The Summit FCUs have all assisted community development credit unions in one way or another. And North Carolina State Employees Credit Union's alliance with Latino Community Credit Union has helped the latter go from a humble start-up to a credit union with five
branches, $18 million in assets and more than 27,000 members.
Credit unions have consistently beat other financial institutions in customer advocacy rankings, according to Forrester Research Inc. Forrester defines "customer advocacy" as doing what's best for the customer, not just the firm's bottom line. Those of us who work for credit unions know without a doubt that credit unions offer consumers a better value for their financial needs. The question is, do Wal-Mart shoppers know that?
Not if Wal-Mart can help it. Ironically, there were aspects of Wal-Mart's statement last month that could have come straight from the lips of a credit union CEO: "Many of our customers are paying too much, traveling too far and not being well served. But they still need to pay their bills, cash their checks and transfer money. We're offering them a safe place and a card to help them manage their money." Wal-Mart is also expected to soon announce more products and services, and CNN has reported that there have been rumors that Wal-Mart might eventually offer mortgages and home-equity loans.
All of this means we will need to do a better job of promoting the services we can provide to prospective members in underserved communities if we are to keep up with the juggernaut that is Wal-Mart.
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