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Amid struggles, Wal-Mart consolidates its rural foothold

The new checking account services offered in Wal-Mart stores appear pitched at a rural, underbanked community.

Wal-Mart, after facing a series of challenges over the past couple of years, is attempting to evolve. 

It has started building more small or mid-sized stores, rather than focusing solely on its trademark big box locations. It is trying to expand into urban areas like New York and Washington, D.C., although it has faced some local resistance. And now, in partnership with the banking service Green Dot, Wal-Mart is offering expanded financial services to its customers.

It's possible the company, which reportedly employs 2 million workers worldwide, has grown too big for its own good.

"I think they've reached what they can do with big stores."'

"I think they saturated the landscape, to be honest with you," said professor emeritus Kenneth E. Stone, a former economist at Iowa State University and a long-time Wal-Mart observer. "They haven't been doing very well these past few years, and it's because they just put so many stores in there, they've robbed Peter to pay Paul, so to speak. I think they've reached what they can do with big stores."

Last week, Green Dot announced that it would be rolling out GoBank, a new checking account service available exclusively through Wal-Mart stores. The "starter kit" for these new checking accounts costs $2.95, and there are no overdraft fees. The monthly membership fee is $8.95, but that gets waived in any month during which the account receives a direct deposit of $500 or more. In other words, GoBank looks like a pretty good deal for a group of people who already fall well within Wal-Mart's sphere of influence: The unbanked and underbanked.

The Federal Deposit Insurance Corporation (FDIC) defines unbanked households as "those that lack any kind of deposit account at an insured depository institution." Underbanked households are those that "hold a bank account, but also rely on alternative financial services (AFS) providers," such as payday lenders. As of 2011, some 41 million U.S. adults resided in either unbanked or underbanked households. A disproportionate share of them resided in the South, where just about one-third of all households fit into either category.

That just so happens to be where Wal-Mart got its start, and where it still has the greatest number of retail locations as a percentage of the overall population. In Arkansas, where the company started and is headquartered, there were 3.27 Wal-Mart stores per 100,000 people as of 2006, according to the Federal Reserve of Minneapolis. By way of comparison, none of the states along the West Coast averaged so much as one store per 100,000 residents.

"Basically, the bottom half of the working class is their people."'

It goes without saying that unbanked and underbanked Americans aren't just disproportionately Southern, but also disproportionately poor. And there, too, the portrait of the average underbanked household overlaps with the portrait of the average Wal-Mart customer. According to the company itself, the average Wal-Mart customer earns somewhere between $30,000 and $60,000 annually; but the retailer is dependent enough on low-income customers that its annual report cited food stamp cuts and "changes in the eligibility requirements of public assistance plans" as a factor leading to declining sales.

"Basically, the bottom half of the working class is their people," said University of California-Santa Barbara labor historian Nelson Lichtenstein, the author of a book about Wal-Mart. In addition to achieving saturation in rural areas and getting squeezed by the declining incomes of its working class customer base, said Lichtenstein, Wal-Mart is facing more intense competition from dollar stores. Family Dollar and Dollar Tree, two other retailers aimed at a primarily low-income clientele, recently announced that they would be merging.

If low-income customers accessed their banking services through Wal-Mart, however, that would tie their fortunes more closely to those of the company. "It's a way of connecting them to Wal-Mart," said Lichtenstein.

Wal-Mart spokesperson Molly Blakeman said the GoBank service now being offered at Wal-Mart is simply a shelf product like any other.

"We just think it's a great offer for us to have for our customers," she said, in response to a question about the service's target audience. However, she also said that GoBank was being offered at least partially in response to customer feedback.

"What they told us is that bank fees are simply to high, and we're always looking to fill a need where our customers have one," said Blakeman. Using GoBank as a way to draw underbanked people into Wal-Mart locations was "not necessarily our intent, but we obviously love it when people return to our stores."

Amy Traub, a senior policy analyst at the left-leaning think tank Demos, raised concerns about a clause in the GoBank contract requiring that customers waive their right to sue the company. Writing binding arbitration clauses into checking account contracts -- an increasingly common industry practice -- requires customers to agree to third-party mediation to settle disputes instead of going to court. Green Dot's contract says that the company will pay for arbitration.

"It's the privatized justice system, and the incentives are not quite what they are in a court of law," said Traub. "And your rights are not quite what they are in a court of law."

A recent report by the Consumer Financial Protection Bureau (CFPB) found that consumers filed about 300 disputes per year in arbitration between 2010 and 2012, although millions are covered by binding arbitration clauses.

In an emailed statement, a Green Dot representative said that binding arbitration clauses are "customary for many types of consumer contracts."

"We don't see how having a standard arbitration clause in our cardholder agreement would hinder a customer's enjoyment of our GoBank product," the statement said.