Wal-Mart withdraws industrial banking push

FDIC says retailer 'made a wise choice' not to pursue application for limited banking operations.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Wal-Mart Stores said Friday it will withdraw its controversial application for limited banking operations, after critics said the world's No. 1 retailer might use the bank as a stepping stone to offer a broader range of financial services.

"Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers," Jane Thompson, president of Wal-Mart Financial Services, said in a statement.

"We fully intend to continue to introduce new products and services that champion those who deserve convenient, lower priced financial services," she added.

Wal-Mart (Charts) already offers customers check cashing, money transfers, and Wal-Mart branded credit cards.

The world's largest retailer applied in July 2005 to establish an "industrial loan bank" or "industrial loan company" (ILC) in Utah that would help eliminate third-party transaction costs that it currently incurs from processing of credit, debit card and electronic check transactions in its stores.

The Treasury Department defines an "industrial bank" as a limited service financial institution, distinguished from commercial banks because industrial banks do not offer deposit (checking or savings) accounts or any other type of financial services to consumers.

Though several other retailers, including Target (Charts) and Harley-Davidson (Charts), already own banks, Wal-Mart's attempt has met with resistance from the banking industry, community banks and labor unions.

Mostly banks feared that Wal-Mart would use that so-called industrial bank status to eventually springboard into the commercial bank business, offering deposit, checking and loan services.

Bart Narter, a senior banking analyst at Boston-based research and consulting firm Celent, said he was confident that Wal-Mart intended to get into the retail banking business.

"But do I fault them for wanting to? No," Narter said. At the same time, he said Wal-Mart was smart to drop its banking bid when it realized it couldn't win with critics.

"Wal-Mart could operate an incredibly efficient bank and that's the problem. If Wal-Mart attracts all the deposits from small town banks, it could wipe out small businesses that depend on community banks for loans to support their operations," Narter said. "Where Wal-Mart excels is not in commercial lending. It's good at commercial processes like check cashing and money transfers."

The withdrawal was greeted by federal regulators.

"Wal-Mart made a wise choice. This decision will remove the controversy surrounding their intentions," FDIC Chairman Sheila C. Bair, said in a comment e-mailed to CNNMoney.com Friday.

"They don't need an ILC to play an important role in expanding access to financial services, they can do so by partnering with banks and others," Bair said. "We look forward to working with Wal-Mart in meeting the need for low cost financial services across all populations."

Wal-Mart was sensitive to the criticism.

"Unlike dozens of prior ILC applications, Wal-Mart's has been surrounded by manufactured controversy since it was submitted nearly two years ago," Thompson of Wal-Mart Financial Services said.

"At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested. We simply sought to reduce credit and debit card transaction costs."

The retailer claims that Wal-Mart's financial services save its customers more than $245 million a year.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.