story by Kim Souza
Editor's note: Story updated with changes and additions throughout.
Facing tough sales comparisons and other operating headwinds, Wal-Mart Stores Inc. is once again expanding its fee-based services with a new money transfer option expected to rival Money Gram for U.S. money transfers up to $900.
The retail giant said it has teamed up with Ria Money Transfer, a division of Leawood, Kansas-based Euronet, to offer a cheaper money transfer option to its cache of financial services. Wal-Mart said it saw a gap in services for its customer base and pursued a partner to bring a cheaper option for sending money within its U.S. network of 4,000-plus stores.
“After listening to our customers complain about the high fees and confusion associated with transferring money, we knew there had to be a solution,” said Daniel Eckert, senior vice president of services for Walmart U.S.
He said the new product — Walmart-2-Walmart — brings new competition and transparent, everyday low prices to a market that has become complicated and costly for consumers.
“We’re doing what we do best – launching a new service that challenges the status quo and drives down prices for our customers,” Eckert said.
Walmart-2-Walmart has a clear fee structure depending on how much money is transferred. For amounts under $50 the transfer fee is $4.50, a slight discount from the $4.75 to $5 charged by other services. Eckert said the real value comes in the larger transactions as up to $900 can be sent for $9.50. Eckert said that same transaction would cost up to $76 with other service providers.
Wal-Mart offers a like service with MoneyGram which is worth an estimated $398 million, based on last year’s business between the two companies. MoneyGram, which clears through the Bank of New York, noted that Wal-Mart Stores was its largest partner in 2013 representing 27% of its total money transfer revenue.
Eckert said Walmart-2-Walmart has limits that MoneyGram does not. The retail giant said it will continue to offer Money Gram premium grade services and has signed a three-year extension with the financial partner to 2016.
“Walmart-2-Walmart is available in-stores only, no online option. A customer can bring in cash or use a pinned debit card to initiate a money transfer in any one of our stores, including Neighborhood Markets and Express formats,” Eckert said.
Roughly 95% of Americans live within 15 miles of a Wal-Mart location so leveraging this massive physical infrastructure makes this value proposition possible. Juan Bianchi, CEO of Ria Money Transfers, said the transfers are capped at $900 per day to stay clear of the regulatory hoops that come with handling larger wire transfers. The U.S. government requires transfer agents to collect and store sending and recipient information in addition to filing regulatory papers on transactions above $900.
The partners said they wanted to slash the price for customers who use the services the most — military servicemen on bases or oil field workers sending money back home. Keeping the transfers domestic and tied to the store infrastructure, then capping transfers at $900 were the best way to keep the price down.
Bianchi said senders can provide a pin number or security question to the transfer agent which allows the receiver to pick up the money without having to show identification, although a photo I.D. would work.
Almost 28% of Americans are classified as either underbanked or unbanked, with millions using money transfers as a critical part of maintaining household budgets or helping friends and family in times of crisis. Wal-Mart has worked to provide bank-like services for several years. Financial services added about $4.8 billion to Wal-Mart’s topline revenue last year, according to the retailer’s annual filing with the federal Securities and Exchange Commission.
Last year Wal-Mart launched Blue-Bird, a checking and debit alternative that the company says has resonated with the unbanked and some of the banked population given accessibility and lower fee structure.
“One of the things we do best is provide a wide assortment of products and let our customers decide what works best for them. Walmart-2-Walmart is another example of corporate efforts to partner with providers to fill a gap in the market,” Eckert said.
Jason Long, CEO of Shift Marketing Group, said Wal-Mart’s new money transfer service looks like another great way to drive in-store traffic and adds another revenue stream to the business. It should appeal to many of Wal-Mart’s core customers who can save a trip and save money by using the service."
By launching this service, Wal-Mart is extending its strategy of offering basic financial services to help bring shoppers into its stores and keep them there. What is interesting is that many grocery stores already offer money transfer services in partnership with Western Union and MoneyGram, so this is a competitive response to the other companies already in their space. Banks have also partnered with Western Union and MoneyGram, so this means that Wal-Mart has another financial services product to make its MoneyCenters more attractive and more full service, said Ben Jackson, senior analyst with Mercator Advisory Group.
He adds that Wal-Mart shoppers who use this service will likely be sending it to people who are also Wal-Mart shoppers. By sending it store to store, they are enabling a transaction that happens in a place both the sender and recipient are familiar with and comfortable in.
"Our CustomerMonitor Survey Series found that in 2013, 14% of the U.S. population sent money to friends or family using a money transfer, and that was an increase from 9% in 2012. We do not know if those were domestic or international transfers," Jackson said.
Investors also applauded this move by Wal-Mart and Ria sending the shares of each company higher. Shares of MoneyGram went south on the news. Shares of Euronet, the parent of Ria, rallied 4% in early trading after Thursday's announcement. Euronet shares rose to $42.41, up $1.62. Wal-Mart Stores Inc. shares are up a dime to $77.32, while MoneyGram stock price fell 15% to $15.24 on the news it will have more competition within the U.S.