Will Wal-Mart's New Checking Accounts Change the Game?

More than a quarter of Americans are unbanked or underbanked, according to the Federal Deposit Insurance Corporation. Without access to traditional banking services, many pay thousands of dollars in fees to use check-cashing services, payday loans and other alternative financial services. New players like mobile banking startups and potentially even the U.S. Postal Service hope to fill the gap left between traditional bank services and their alternatives.

Wal-Mart already offers basic financial products and services such as prepaid cards and international money transfers, but the retailer recently ann ounced its entrance into the checking account market through a partnership with Green Dot Corporation (Green Dot is the bank; Wal-Mart is the distribution channel). After testing the mobile checking account GoBank in select locations late last year, Wal-Mart plans to offer the checking accounts in more than 4,000 locations throughout the country by the end of this month.

Customers can purchase a starter kit at any Wal-Mart store for $2.95 and set up an account online after verifying their identity. They'll also have access to over 4,200 ATMs in the network (withdrawals from an out-of-network ATM cost an average $2.50) and a mobile banking app.

"GoBank accounts are targeted to anybody looking for a different way to manage their finances, customers who are unhappy with their bank account now or were unable to get a bank account," says Wal-Mart spokeswoman Molly Blakeman. "We're providing our customers with options, whether in the grocery aisle or laundry detergent aisle or with banking."

Most traditional banks use consumer data services to check whether a prospective checking account customer has had accounts closed due to bounced checks, fraudulent activity or other issues. That screening practice has come under scrutiny from groups including the Consumer Financial Protection Bureau because once consumers fall into a cycle of overdrafts or bounced checks, it can be hard for them to get back into the traditional banking system. "We are much more lenient and forgiving," says Alok Deshpande, chief product officer for Green Dot and GoBank. "We don't necessarily look at third-party databases and make our decisions based on that."

Deshpande adds that GoBank does not charge fees for overdrafts or non-sufficient funds (instead of honoring a transaction when there's insufficient funds, the card will be declined). "We've designed the product to try to keep you out of financial trouble," he says. "One of the things we really want to do is put people in control of [their] money. You can enable this feature called 'slide for balance.'" Slide for balance allows you to quickly view your balance on your mobile phone without actually logging into mobile banking. Another feature called "Fortune Teller" lets you input a possible purchase and ask the GoBank app if it's within your budget.

GoBank is touted as a low-cost checking account, but it does carry a few fees: a 3 percent foreign transaction fee and a $8.95 monthly fee (many banks charge fees upward of $10 per month) that is waived with a monthly direct deposit of at least $500.

While some banks are skeptical of Wal-Mart's announcement (the retailer applied for a U.S. banking license several years ago, and later dropped it in favor of partnering with financial institutions instead), Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, says it actually creates significant opportunities for those institutions. "Particularly large banks should think about what they want to sell through that channel," she says. "Some people like the convenience of going to a retailer or feel more comfortable there. Wal-Mart represents unparalleled distribution."

While Wal-Mart is perhaps the largest example of a retailer expanding into financial products, it's not the only one. Tescher points to cellphone providers T-Mobile and Boost Mobile (owned by Sprint), which offer basic prepaid Visa cards. Convenience stores like 7-Eleven have also become involved in a payment processing network called PayNearMe. "It allows cash-preferred consumers to buy things online, and then pay with cash physically in a store," Tescher explains.

As for Wal-Mart, Sirapat Polwitoon, associate professor of finance at Susquehanna University in Selinsgrove, Pennsylvania, predicts the move could benefit consumers and, of course, the retailer itself. "Wal-Mart offering checking accounts will certainly benefit their customers financially or, at least, save their customers a trip to the bank," he says. He adds that the new banking option could increase store traffic, "which usually leads to more sales."

Tescher agrees. "It creates more competition, and that tends to drive down prices and encourages greater innovation," she says. "At the end of the day, what's really needed is more high-quality choices in the market."