Banking while you grocery shop

11/14/2012

In the U.S., where its banks are getting tighter when doling out credit, major retailers are filling the void.

A report in the New York Times said that consumers in the U.S. can now purchase home insurance from Costco, a small business loan from Sam's Club and life insurance from Walmart.

Consumer advocates are wary about retailers getting into the banking industry as they say it puts financial products are making it into the hands of people who don't qualify for them, and to turn a profit, retailers charge more to people with poor credit or none at all.

Retailers aren't getting into banking for profit. Instead it's a business strategy meant to put money into customers’ hands and get them buying more, said the article.

“You’ve got to remember, Walmart is intended to be a one-stop shop,” said Charles Holley Jr., the company’s chief financial officer, said.

While supermarket chains have long leased space to bank branches, they are now offering their own products or teaming with small financial firms, with supporters saying that grocers are stepping into areas that banks have abandoned.

Those who use few, if any, bank services–roughly 10 million households in the United States–do not use a bank, up from nine million three years ago, said the report.

Holley said that 20 to 25 per cent of Walmart customers were "unbanked."

Walmart just unveiled a prepaid card with American Express and it began testing a one-year MetLife life insurance policy. Costco meanwhile sells auto and homeowners’ insurance, offers credit card processing for small businesses and mortgages.

The mortgages aren't where the retailer makes money, but in the renewal of their store memberships.

And Sam's Club offers loans backed by the government’s Small Business Administration.

Paco Underhill, shopper behaviour expert at Envirosell, said that retailers could try to obtain banking charters next, but it’s not hard for a retail organization to see what else it can be selling to its customers.

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