This story by the Washington Post presents evidence that retailers are increasingly introducing financial services products that compete with banks:
“Millions of low-income Americans who don’t have bank accounts are finding an alternative to check-cashing stores at an unusual place: their local big-box retailer.
Kmart has begun testing check cashing, money transfers and prepaid cards in stores in Illinois, California and Puerto Rico, with plans to roll out the services nationally later this year. Best Buy has installed kiosks in its stores for shoppers to pay utility, cable and phone bills. Wal-Mart has opened roughly 1,500 MoneyCenters that process as many as 5 million transactions each week.
The retailers are mainstreaming a $320 billion industry of alternative financial services that has long operated in the shadow of the formal banking system and under the radar of federal regulators. The new Consumer Financial Protection Bureau was established in part to plug the gaps in oversight, but it remains unclear how much authority it will have over stores. One thing, however, does seem certain: Demand for alternative services is only expected to grow as strict new rules force banks to charge higher fees for checking accounts, placing them out of reach of many financially strapped households.”
Citing a recent government survey that indicates nearly 30 million households either do not have a bank account (or use one only sparingly) and that almost 70 % of families are considered “unbanked” and earn less than $30,000, a year the article goes on to document how merchants have entered this market:
“That is part of the impetus for the bill-payment service Best Buy launched last year in a handful of markets. The kiosks, operated by Tio Networks, cater to Hispanic shoppers who are often wary of banks. But many are willing to sign up for complicated cellphone plans at Best Buy, and executives say it was a short step to paying the bills in the store as well.
Kmart began wading into the market when it reintroduced layaway in its stores at the start of the recession. Many shoppers had lost their jobs and were wary of building up credit card debt, making layaway an attractive alternative.
The program was so successful that Kmart began offering it year-round. And Susan Ehrlich, president of financial services for Kmart and parent company Sears, said executives learned another important lesson: Shoppers turned to the store to help them manage their money.”
The article then asks who will regulate the financial services introduced by these merchants?
“Under the new consumer protection bureau, financial products and services offered by retailers will have to meet the agency’s rules. But the question remains whether it will have the authority to examine the companies’ books and business practices, according to consumer groups. The law that established the agency exempts retailers from such oversight, unless they are large players in the market – a phrase that has yet to be clearly defined.
Meanwhile, retailers are getting a seat at the table: Kmart’s Ehrlich was named to the Federal Reserve’s Consumer Advisory Council, the precursor to the new agency .”
Click here to read the article.