WAL-MART SEEKS BANK TO REDUCE DEBIT-CARD FEES

MARK HAMSTRA

BENTONVILLE, Ark. -- Wal-Mart Stores here said it hopes to reduce the fees it pays for accepting debit cards by buying a small bank, which some analysts said could be a platform for expanding the company's financial services.

The company has applied for state and federal regulatory approval to acquire Franklin Bank of California, Orange, Calif., in an effort to eliminate the fees the retailer currently pays to a sponsor bank to access the electronic network used to process transactions in which customers pay using debit cards. The fees amount to pennies per transaction, analysts said, but with Wal-Mart's volume, they add up quickly.

The terms of the agreement with Franklin, which has an industrial bank charter allowing it to be acquired by a retailer, were not disclosed. Calls to the bank were referred back to Wal-Mart.

Some analysts speculated that this could be the first step toward launching a proprietary Wal-Mart credit card.

"There are a lot of questions as to what their goals are," said Robert McKinley, chief executive, CardWeb.com, Frederick, Md. "I think many people in the banking industry are probably suspicious that they will look to broaden this and to perhaps get into the credit card business and other financial services."

McKinley pointed out that Wal-Mart rival Target, Minneapolis, has had success with its Target Visa card.

Wal-Mart said its plan for Franklin Bank, as submitted to the California Department of Financial Institutions and Federal Deposit Insurance Corp., involves using the bank only to process debit cards, although the bank would continue to operate in its current single location.

"We have no plans at this point to use this as a vehicle to introduce our own credit cards at Wal-Mart," said Bob McAdam, vice president, corporate affairs, Wal-Mart. He also said there were no plans to site branches of the bank inside Wal-Mart stores.

McKinley said credit cards could be a lucrative business for Wal-Mart. "I'm surprised they haven't made moves into that area before," he said.

Wal-Mart offers a private-label credit card through General Electric and a co-branded card with Chase Bank, but it does not yet manage its own card like Target does, McKinley explained.

Separately, Wal-Mart also is considering a new proposal to introduce banking services through a partnership with TD Bank USA, a division of Toronto-Dominion Bank, Toronto, McAdam said. The U.S. Office of Thrift Supervision rejected a previous plan by Wal-Mart to operate the bank in 100 of its stores because of federal laws prohibiting the operation of banks by retailers.

"Our goal is to bring banking services to our customers in places where we don't already have some lease arrangements with a bank," said McAdam. "The attempt with Toronto-Dominion is trying to accomplish that goal."

Federal regulations prohibit retailers from owning most banks, although some supermarket chains, including Hy-Vee, West Des Moines, Iowa, and Ukrop's, Richmond, Va., acquired an ownership stake in banking companies before the law took effect in 1999.