Wal-Mart Bank Could Squeeze Processing Firms

by Mike Bevel, CollectionIndustry.com

All right, banking community and financial industry: we get it. You?re afraid of Wal-Mart. Can we go now?

In yet another round of pearl-clutching and hand-wringing ? (over Wal-Mart?s bank application that, it should be pointed out, still hasn?t passed and, seriously guys: probably won?t) ? it?s the credit card issuers and payment-processing entities who have now added their voices to the cacophonic symphony of caterwauling against Wal-Mart and anyone else looking to get an ILC (Industrial Loan Company) application past the Fed.

Wal-Mart submitted its bank application as a way to process its own credit/debit card charges rather than having an outside company ? in Wal-Mart?s case, First Data, which currently handles all of the debit-card, credit-card and check processing of Wal-Mart’s customers ? handle that grunt work. It would save Wal-Mart a considerable amount of money, and it remains the sole reason that Wal-Mart is alleging for the bank application.

Critics, who have a hard time seeing the softer side of Wal-Mart, fear the worst: that Wal-Mart will use its bank status as a way to wreak havoc all across this land, smiting small banks and credit unions the way it polishes off mom-and-pop stores with both gusto and aplomb.

Other corporations, like Home Depot, have followed Wal-Mart?s lead in applying for ILC status ? and this has companies like First Data in a bit of what industry experts like to call a ?tizzy.? If companies like Home Depot and Wal-Mart can process their own payments, companies like First Data will eventually have to find new avenues of revenue.

“We’ve got great relationships with a large number of retail clients and we want to continue to have a great relationship with them,” Tom Wheeler, a spokesman for First Data, told MarketWatch. “At the moment, it’s too early to comment on these licenses.”

Of greater concern is the status of ILC banks in general. As the MarketWatch story points out, ?With assets mushrooming by a staggering 3,900% between 1987 and 2006, it has become clear to lawmakers and regulators that ILCs are a serious force to be reckoned with. Industrial loan companies control more than $155 billion in assets today, according to a report last year by the Government Accountability Office.?

The Fed has placed all ILC applications on a 6-month moratorium: ?Recently, the growth of the ILC industry, the trend toward commercial company ownership of ILCs and the nature of some ILC business models have raised questions about the risks of ILCs to the deposit insurance fund, and whether their commercial relationships pose any safety and soundness risks.”