It is expensive to be poor. Case in point, if you don’t have access to a bank account and need to send money to a friend or family in a different location, often your only choice is an expensive cash wiring service. Last year the World Bank found that the average cost of remittance services worldwide was 9 percent.

Well, these rates could be changing quicker than anticipated. On the heels of rumors that Facebook is preparing to offer money transfer services, it was officially announced that Walmart will be offering cash transfers for customers between stores, and doing so at their famous Walmart prices.

Say what you will about Walmart, it is hard to dispute that they know how to lower prices. At least initially, they will provide cash transfer services at significantly cheaper rates than most money transfer service providers. For instance, to send $900 between Walmart stores would only cost customers $9.50, a Walmart press release indicates. Transferring the same amount via Western Union would cost at least $52, according to their online price estimator, calibrated for my sending city of Boston.

Along with its low prices, Walmart thrives on its ability to attract customers with the ease and convenience of a one-stop shop. In 2012, it began offering its Bluebird reloadable prepaid cards, marketed as an alternative to checking and debit accounts.

This remittances news about Walmart raises interesting questions about what the future of the market might look like, as more non-traditional players including internet-based groups like Facebook and mobile service providers start offering money transfer.

Unlike with Walmart, the use of mobile service providers or internet-based applications to send money requires that users have a phone or internet access and the know-how and comfort to use these tools to transfer money. Mobile connectivity is widespread, and internet penetration is increasing rapidly, however, much room for improvement remains in mobile money uptake and in internet access. Also, neither of these remittance options provide the ease of cash entry and exit points, and the reality is that most of the world’s poor still operate in an informal, cash society. Walmart on the other hand has 10,957 retail units worldwide.

Though there is one huge shortcoming in Walmart’s new offering: for now, the transfer services are only available between stores in the United States.

Who will be next to join the list of remittances providers? McDonalds is in more than 100 countries, with more than 35,000 restaurants serving nearly 70 million people every day, many of whom might be ideal candidates for a cheap cash transfer service. Perhaps the day is nearing when you will send money to your grandmother in Bolivia or Tanzania while ordering up a Big Mac.

Image credit: Bloomberg/Getty Images

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The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Does Walmart pose a threat to banks? Some bankers are apparently worried the retailer indeed does. As Bloomberg recently uncovered, a group of bankers that advises the Federal Reserve asked U.S. regulators to keep Walmart out of the financial services business, or at least strictly limit and regulate their financial services-related products, including its established prepaid card business. Offered in partnership with American Express, the prepaid cards, known as Bluebird, are even marketed as a “checking and debit alternative.” The bankers’ group, called the Federal Advisory Council, thinks they are not just an alternative to traditional financial services, but a bona fide financial service in a “shadow banking” system that enjoys less regulation than traditional commercial banks.

So, is Walmart a real threat to the traditional sector? Maybe, but it and other big retailers could have the potential to reach those excluded from or underserved by traditional commercial financial services.

Consider the example of Banco Azteca in Mexico.

Banco Azteca, which CFI’s Elisabeth Rhyne called a “mega-success story” in terms of its reach and to whom the Inter-American Development Bank recently awarded its “equalBanking” prize for support of diversity and gender equality through financial services to the base of the pyramid, has a much different beginning than most banks: it grew out of one of Mexico’s largest consumer goods retailers, Grupo Elektra. After almost 50 years of experience offering consumer financing to its working class customers, the retail chain opened Banco Azteca branches—notably, after receiving a banking license—in all of its existing stores, establishing Mexico’s second largest network of bank branches almost overnight.

From the start, Banco Azteca catered to low and middle-income groups that were largely excluded from mainstream commercial banking, benefiting from Grupo Elektra’s deep understanding of this market. With low documentation requirements and travelling loan officers that visit customer’s homes, Banco Azteca lowered several barriers that excluded these groups. It also benefited from Grupo Elektra’s sophisticated client data technology, databases, and collection systems, along with the company’s established reputation among low- and middle-income consumers. While its poor client protection practices have often been criticized, and its interest rates are higher than traditional banks (but similar to or better than major Mexican MFIs), Banco Azteca offers fewer documentation requirements than traditional banks and accepts non-traditional forms of collateral. For many informal business owners without the proof of income required by other banks, Banco Azteca is one of few options.

Today, Banco Azteca is one of the largest banks in Mexico and has expanded to Peru, Guatemala, Honduras, El Salvador, Panama, and Brazil. World Bank researchers even found that Banco Azteca branch openings led to an increase in income levels by about seven percent on average over two years and a 1.4 percent reduction in unemployment over two years in the municipalities where branches opened. Surprisingly (to some), municipalities where Banco Azteca opened showed rapid growth in savings, not just loans, showing the great unmet demand for accounts for lower-income individuals.

So, should banks be worried? Maybe not. Another researcher found that (controlling for other differences) in municipalities where Banco Azteca opened, individuals were three times more likely to use bank credit and almost half as likely to use pawn shop credit in the years following the bank’s opening. Thus, the opening of Banco Azteca discouraged the use of much more costly, informal financial services such as those loans provided by pawn shops (which typically charged interest rates double that of Banco Azteca) by providing a more formal, lower-cost alternative—showing that Azteca was filling a much-needed gap in providing formal financial services to lower income individuals who could not use the larger commercial banks. Azteca could also be serving as a “gateway” to larger, more traditional financial institutions for those without the necessary credit histories by using a reputable brand among those with lower incomes to establish greater trust in formal financial services.

Just as Banco Azteca addressed a gap in the Mexican market that it was uniquely positioned to fill, so too can Walmart in advancing financial inclusion. In fact, in addition to its financial services expansion in the United States, Walmart also received a banking license in Mexico—where it is trying to go head-to-head with Azteca. One of the recommendations that has emerged from the Financial Inclusion 2020 Roadmap to Financial Inclusion is the need for non-bank financial service providers—including retailers and mobile banking platforms— to be allowed into the financial services space given their huge potential (and recent successes) in accelerating financial inclusion. However, these providers should also be subject to financial regulation and supervision to ensure clients are protected. The Roadmap recommends that regulations be put in place according to specific financial service risk rather than category of service provider.

Perhaps Walmart won’t become the next Banco Azteca, but the latter’s example shows the potential for Walmart and other retailers to reach many financially excluded or underserved populations. Smart regulation can promote—rather than restrict—a healthy, competitive marketplace for more inclusive financial services.

For more information on Financial Inclusion 2020, sign up for campaign updates.

Image credit: Forbes

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