Walmart vs. Congress, Stop the retail banker

If you have been following the Walmart saga, you would know that Walmart is attempting to purchase an industrial loan company (ILC) in Utah for the purchase of processing their own credit card transactions. AN ILC is basically a type of bank, that has restrictions and limitations compared to a standard bank. ILC’s are more common in western states. There also happens to be a loophole in the structure of ILC’s that can allow them to be run by Retail entities. While these ILC’s remain regulated by the FDIC, the company that owns the ILC remains free from government regulations. America has a history of keeping banks and retail industries separate, because banks are key to the stability of American economy, and commercial entities may not keep the best interests of American economy in mind when running the bank.

The significance of Walmart processing their own credit cards, is that is could save them a great deal of money each year in processing fees. Walmart processes somewhere in the neighborhood of 100 Billion dollars a year in credit and debit cards. At a volume like that, even the smallest decrease in the amount that they pay for processing credit cards could save the company a lot of money. Imagine that Walmart can only save themselves .01% if they process their own cards, they would be able to reduce their cost by over a million dollars a year. That million dollars plus, is in turn pure profit.

Walmart is no doubt the largest company in the world, bringing in over $250 Billion in revenue each year. There are only 26 countries in the world with a higher annual GNP than Walmart’s yearly revenue. One of the reasons that there are so many groups, and people opposed to Walmart purchasing an ILC is that there is an uncertainty in what Walmart will do with their new financial division. While Walmart claims that they are only going to use the ILC for processing their own transactions, there is little stopping them from entering the payment processing, and traditional banking industries with their blitzkrieg business history. If Walmart was to enter the payment processing industry with their own bank, they could effectively undercut the prices, and wreak havoc in an already saturated industry.

A bill that stood silent for over 10 years to help close the ILC loophole, is back in congress. If that bill is approved, it would effectively shut Walmart and any other super retailer out from purchasing an ILC. With substantial support on both sides of congress for closing the ILC door, Walmart may have to look at other options. But with Walmart’s history, financial backing, and the determination that they have shown in the past, it is unlikely that the bill will go through without a fight.