Last Week, Wal-Mart Financial Services announced plans to add 1,000 MoneyCenters to the 225 it currently operates. Wal-Mart MoneyCenters are stand-alone counters in Wal-Mart stores that offer check cashing, money order and money transfer services to the under-banked at substantially lower prices than other providers. Meanwhile, BankNet360 reports that major payday lenders including Advance America, Cash America, and EZCorp have announced aggressive growth plans.
Commentary
To date, Wal-Mart Financial Services has avoided the payday lending business. But, having abandoned its bid for a merchant banking license, Wal-Mart Financial Services will need to add new products to grow its business substantially. Payday lending is a logical next step and one where Wal-Mart's "everyday low price" strategy may be welcomed by consumer advocates and regulators.
Further clouding the picture for money service businesses, Congress is continuing to pursue immigration reform which may include tough border security and workplace enforcement measures. A substantial decrease in legal or illegal immigration could have a negative impact on the long term outlook for money service businesses.
In summary, traditional money service businesses may face a perfect storm - price pressure from Wal-Mart, industry overcapacity, immigration restrictions, and new regulatory constraints at the state (e.g. usury) and federal (e.g. anti-money laundering) level. Commercial banks with credit or transactional exposure to this industry should monitor these clients closely.
