No Bank of Bentonville is Bad

It is disappointing that a combination of regulatory sloth and political ill-will has doomed Wal-mart’s nascent attempt to enter a corner of the banking business. New Wal-mart-like entrants are coming into banking around the world, and there is no reason for similar incursions not be happening here in the U.S.

The competition would have been good for consumers, even if Wal-mart was, as it said in statement, only planning to “reduce credit and debit card transaction costs” via a credit card processing subsidiary. Like usual, however, we are “protecting” the interests of a noisy minority — regulators and incumbent — while raising costs for consumers. Not nice.

[via MSNBC]


  1. Richard Schweitzer says:

    Blog readers (and you) may be familiar with the economic concepts of “Open Access” social orders (Douglas North et al.) Those are studies of the historic inter-meshing of the political with the economic, and the effects of each on the other. See, NBER Working Paper # 12795.
    Open access to organizations is compared to the limited access, and the related effects in historic context. What we have in this instance is political action to limit access to an organization (banking/finance), which will, in turn, have a traceable effect on open access within the political system.
    That is what you summarized as the regulators and incumbents (whom North labels – elites, in the historic sense).
    “No, despite the goods and wealth you bring, and workers too, you can’t join the Guild, nor can you form one of your own!”
    I would expect WMT to set up stalls outside the town, and ultimately find a way around the limited access that will call for their inclusion.

  2. WMT’s entry into banking may have been good for consumers (who really knows?) but you know it was going to be great for WMT who would use their customers deposits to fund their retail operations without explicitly profiting from those investments.

  3. I agree 100%. Just like $4 generics before it, WMT’s aborted banking plans targeted rich margins competitors to eviscerate with its deep-value business model. Furthermore, with its packaging and electricity savings initiatives, WMT is forcing the environmental change that lobbying-soaked Washington cannot. Sure, it’s to WMT’s benefit, but it’s to all of our benefits as well.

  4. Richard Schweitzer says:

    Of course it would benefit WMT. Does anybody think they were looking for an executive training course? Right off the bat, as per their proposal, they would knock off close to 2% in transaction processing fees, and obtain “clearing” status, plus better controls over purchase settlements with suppliers.
    But, the real issues, as Paul noted, is why they were denied access, how the denial was effected, for whose benefit and at whose ultimate cost.
    How do the Barney Franks come to know better what is best for the rest of us? Was there something in their self-annointing oil? Let’s all get some!