The Bank of Wal-Mart
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- Published on Wednesday, 10 October 2012 14:57
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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It is expensive to be poor. That dire notion is the key to a successful business for the nation's newest banks.
America's banking system is broke. It's bad news for Wall Street and the remoras that thrive on its behemoth bonuses. But it's great news for the investors willing to open their eyes to what's happening.
What's happening right now should raise some eyebrows.
Many Americans are not getting their loans through a traditional bank. Instead, they are turning to an unconventional lender... like Wal-Mart or Amazon.
It doesn't matter if they are in business or are mere consumers, the story is the same. It all starts with our pals at the Fed. Their cheap-money bonanza has torn down the industry's barriers to entry and has made it possible for anybody with a few extra bucks to become a bank.
For some of the country's leading businesses, it's another chance to sharpen their competitive edge.
Let's look at the Amazon example. Late last year, it launched a business segment dubbed Amazon Lending. But it's not there to help buyers finance the purchase of new textbooks or a fancy coffeemaker.
Nope... this business is all about financing the businesses that sell through the Amazon marketplace.
If you sell anything through Amazon's network, there's a good chance you received an email from Amazon Lending over the last few months. The group is offering loans from as small as $1,000 to as large as $38,000.
In many cases, the interest charged is lower than what any conventional bank can charge. In one case, I found a rate below 1%.
But how can Amazon afford to offer rates so low? Even Uncle Sam charges more than 1%.
It's simple. Amazon is not in the banking business. It's in the logistics business. And if selling a loan below its cost leads to better revenues in the chief business, the deal is a no-brainer.
The online retailer isn't making loans to the many fly-by-night operations that streak across its site. No, it's preying on the big boys... the third-party retailers that will use the cash to grow their operations. The larger they get, the bigger Amazon's cut of the sales.
It makes for good business all around... unless you're the poor bank wondering where your customers went.
Wal-Mart is doing virtually the same thing. It has declared a virtual war on traditional banks. But this time it's targeting the average consumer.
And once again... it's all thanks to the dealings in Washington.
Here's a fact. The average consumer pays an average of $259 a year for a checking account. And the minimum balance in many accounts has risen as high as $5,000.
Five years ago, the majority of accounts were free and the minimums were in the triple digits.
But when Wall Street broke, our elected leaders worked overtime to "fix" the problem with new rules. Thanks to all of that oh-so-grand Wall Street regulation, running a bank is more expensive than ever.
Since the banks can't make their money the old-fashioned way (by stealing it when we're not looking), they're robbing us in plain daylight. They're taking the money straight from our checking accounts.
Wal-Mart isn't a bank. It plays by a different set of rules.
The giant retailer just made a full rollout of its Bluebird product. It is a savings and checking account alternative that just so happens to make consumers much more dependent on the company's 4,000 brick-and-mortar stores.
The system is almost entirely free. The only time customers get charged is when they take cash from an out-of-network ATM machine.
Wal-Mart continues to take advantage of one of our favorite themes -- it's expensive to be poor. The meltdown of the American economy has treated the company well. Now that 17 million of our neighbors are too broke to afford a checking account, Wal-Mart swooped in and filled the void.
Those folks will now do their banking in a Wal-Mart checkout line.
Like I said at the top, all of this is bad news for traditional banks. Washington's regulatory army has strangled their business model. But it is great news for the fresh competitors.
In fact, in the next issue of Unconventional Wealth (due out on Monday), I break down the opportunity tucked deep inside the realm. I introduce readers to a company that has recently made big moves in the world of underground banking. If my prognosis is right, readers will be sitting on profits of 40% or more in the next 18 months.
If you ever wanted to know how the ultra-rich do their banking...and how to profit from it... well, let's just say they do things a bit differently.
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