Friday, August 22, 2014

Walmart destroying MoneyGram and Western Union with new money transfer service

Shares in both Western Union and MoneyGram tanked yesterday all thanks to a press release from Walmart announcing a new service, Walmart-2-Walmart. It's going to be a very basic money transfer service. No online or mobile app options. No foreign transfers. Just your basic show up to a Walmart and hand over some money, then the person you want to send the money to can show up to a Walmart and get it.

The fee structure, $4.50 for a transaction under $50 and $9.50 for a transaction between $51 and $900, is both simpler than the competitors' schemes and cheaper. It's a particularly good deal for transactions toward the high end of that range, but they seem to be structuring it to undercut the competition throughout this range.

Here's how Walmart puts it:


The incumbents still have plenty to offer that Walmart doesn't, but this is a big part of their core business and to stay competitive they're going to have to cut prices. For Walmart, offering very low margin financial services makes sense because they already have the basic infrastructure in place and the transactions don't need to be profitable per se as long as they help get people in the store.

Back in 2010, Walmart started offering check cashing services and badly undercut the competition bringing substantial benefits to low-income consumers.

Earlier than that, back in 2007, Walmart tried to go even further and get a full banking license. Community banks didn't like that idea and regulators and politicians balked at it. But allowing a large national retailer that specializes in downmarket consumers get a banking license would likely be an effective to serve some of the unbanked population and inject more competition into consumer banking. Other options exist (postal banking, for example) that could serve similar purposes. But thus far the impact of Walmart dipping its toes into financial services has been beneficial and it seems likely that it'd be good for consumers for them to go further.

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