Q&A about Wal-Mart's bid to branch into banking

Wal-Mart's effort to branch into banking has cemented an odd coalition of critics who've flooded federal regulators with thousands of letters and prompted unprecedented public hearings into the discounter's request.

The hearings ended last month, leaving it up to the Federal Deposit Insurance Corp. to decide if the world's largest retailer will be allowed to breach the firewall that's separated banking from commerce since Depression-era days.

Here's what's at stake:

Question: Why does Wal-Mart want to be a bank?

Answer: Wal-Mart says it has no interest in originating loans or opening Wal-Mart-brand branches in its stores when the retailer already has long-term leases in 1,150 stores with more than 300 local banks and credit unions.

"Wal-Mart is absolutely and unequivocally committed not to engage in branch banking," Jane Thompson, president of Wal-Mart's financial-services unit, testified before the FDIC. "The purpose of the proposed bank would be to sponsor credit-card, debit-card and electronic-check transactions — nothing more."

By opening an "industrial loan corporation" chartered by Utah but insured by the FDIC, Thompson said Wal-Mart could pass on added savings to customers who want rock-bottom prices.

Wal-Mart doesn't disclose its processing costs. But industry analysts estimate that the discounter, based in Bentonville, Ark., clears an average 140 million credit, debit and check transactions a month. If each costs 50 cents to process, the minimum savings is $840 million a year.

Question: What's wrong with that?

Answer: Critics — an assortment of bankers, Realtors, retailers, farmers, consumer groups and unions — say the retailing behemoth's reputation for crushing Main Street businesses wherever it opens big-box stores is reason enough to deny its request.

Not only is Wal-Mart America's largest supermarket chain 20 years after it got into the grocery business, they say, it also is the nation's No. 1 retailer of recorded music, DVDs, toys, pet food and almost everything else it sells.

Terry Jorde is president of the $40 million CountryBank USA of Cando, N.D., and chair of the Independent Community Bankers of America, the small banks' trade group. She predicted that communities "would lose their local banks" if Wal-Mart gets the FDIC's OK. "They can afford to undercut us until we're gone, and then what?" she asked. Once FDIC insurance is approved, Jorde said, "there is no going back."