Wal-Mart Stores Inc., long in the business of selling discount goods to low-income customers, is offering a new service — checking accounts targeted at those who don't use traditional bank accounts.
The service, called GoBank, is being rolled out nationwide in stores by the end of this month. The low-cost account is designed to be easy to set up and with the same perks as a checking account at a traditional bank — a debit card, mobile access, photo check deposit and a national network of free automated teller machines.
The accounts could bridge a financial gap for the roughly one in four Americans who are considered "unbanked" or "underbanked" by reaching them where they are comfortable shopping, analysts say. But critics wonder whether the accounts are cheap enough and if there aren't better options.
About 5.6 percent of Maryland residents and 7.5 percent of Baltimore-area residents do not have bank accounts, compared with more than 8 percent who are "unbanked" nationwide, according to a 2011 survey by the Federal Deposit Insurance Corp. The survey found that nearly 22 percent of Baltimore-area residents are "underbanked," meaning that they have a bank account but rely on alternative financial services such as check cashing, which can come with steep fees.
The GoBank accounts feature no minimum balance and no fees for overdrafts or bounced checks. A monthly fee of $8.95 is waived with a minimum monthly direct deposit of $500.
For GoBank, Wal-Mart has partnered with Green Dot Corp., which operates a federally regulated and insured bank known for its prepaid MasterCard and Visa cards.
Wal-Mart and Green Dot believe such a cost structure will appeal to customers who either do not use banks or are turned off by rising fees at other banks.
The checking account "is focused on customers who increasingly feel they just aren't getting the value they expect and deserve from traditional financial services companies because of complexity and high fees," said Alok Deshpande, Green Dot's chief product officer, in an email.
Some believe the move will allow Wal-Mart to form tighter bonds with its customers — for many of their banking needs, they'll just drop by a store.
"When you build a banking relationship with a customer, they're kind of in your store on a regular basis," said Bert Ely, a principal at the financial institutions consulting firm Ely & Co. in Alexandria. "It's not so much to be in the banking business per se but to broaden and deepen the customer relationship."
GoBank marks a significant expansion of Wal-Mart's financial offerings. The retailer already offers check cashing and a prepaid debit card called Bluebird through a partnership with American Express. The company also leases space to independent bank branches in some stores.
Wal-Mart tried and failed to get into banking in the past. In 2007, the company sought a federal bank charter but withdrew its application amid heavy opposition from banks that contended the move would upend the traditional separation between banking and commerce — not to mention create a formidable competitor.
Unlike in the past when the industry opposed Wal-Mart's efforts to get a federal bank charter, banks are not concerned about this partnership with Green Dot because it is a bank subject to regulation.
"The concern [previously] was that they wouldn't be subject to the same rules and regulations," said Nessa Feddis, a senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association. "But this is offered through a bank, and that makes it very different."
Feddis said the accounts offered through Wal-Mart stores have features that might be appealing to consumers, such as a proprietary mobile application and the lack of overdraft fees. She said Green Dot could benefit by not having to pay upfront costs to have brick-and-mortar locations since services will be offered at stores.
The GoBank accounts also will be easy to open. Most banks rely on a credit check or a review by ChexSystems, a service where banks share information on closed checking and savings accounts, before letting a customer open an account.
Green Dot said it doesn't use those systems, which can flag customers with poor credit or a history of shuttered checking accounts, but instead uses a proprietary system to evaluate potential customers. Customers must be 18 and show a photo ID to open a GoBank account.
Green Dot's MoneyPak reloadable card service has been tied to criminal activity and scams in recent years, including their use as prison and jail currency detailed in federal indictments for the Black Guerrilla Family corruption scandal at the Baltimore City Detention Center. To combat fraud and misuse, the bank said it is phasing out the PIN-based MoneyPak reload method in favor of a system in which customers can swipe their card at a cash register to add money to the account.
Wal-Mart and Green Dot said GoBank customers will have access to a network of 42,000 free ATMs, and its website shows locations at 7-Elevens and other convenience stores in downtown Baltimore. The service will be offered in stores in 37 Maryland cities and towns, including Baltimore, Glen Burnie, Dundalk, Aberdeen, Catonsville and Ellicott City.
While GoBank is a checking account with a debit card, Green Dot is keeping an eye on services like Apple Pay, the recently launched mobile payment method, Deshpande said. Apple Pay and other mobile payment systems "represent key milestones in the future of payments," he said.
"We anticipate integrating our products with a number of mobile payment platforms as these technologies develop and as customer wants dictate," Deshpande said.
Some critics questioned whether the new checking accounts would benefit low-income customers.
Natasha V. Rossbach, a bankruptcy attorney in Baltimore, said she thought Wal-Mart's advertising of the checking accounts as free was misleading, given the direct-deposit requirement.
"I have a couple clients who work at Wal-Mart as cashiers. They make $8.50 an hour. ... They can't do a $500-a-month direct deposit," Rossbach said. "I think it's yet another way for them to take more of an advantage of people who are already disadvantaged."
Jennifer Allen, an assistant at Rossbach's firm, said she had recently opened a prepaid debit card launched this month by Walmart competitor Target. She said she preferred the prepaid card to Walmart's checking account because it had no fees whatsoever.
Allen, 29, of Glen Burnie, said she could not open a bank account after overdrafting by about $200 on an account four years ago, a debt she discharged in bankruptcy. Without a checking account, she said, she paid bills by giving cash to other people with debit cards so they could pay them online.
Now, she said, "I don't have to rely on anybody to pay my bills with their credit card. I can do it myself."
Given that many banks offer free checking accounts for customers who have direct deposit, Ely wondered what the allure of a Walmart checking account would be.
"In my mind I just put a big question mark on this and we'll see where it goes," he said. "They'll attract some business out of it. Whether it's worth it is another story."