Banks ponder rise of retail shadow banking


I've noted over the years the efforts of big retailers such as Target, Home Depot and Walmart to offer more financial services in competition with banks.

Just recently, Walmart's move to release its Bluebird pre-paid card garnered lots of attention, but that's really just a continuation of the trend to offer more financial services by non-financial firms in general.

The New York Times weighs in on this as, "the nation's largest banks stay stingy with credit and a growing portion of the population has no bank at all, major retailers are stepping into the void. Customers can now withdraw cash at an ATM with a prepaid card from Walmart, take out a loan at Home Depot for a kitchen renovation or kick-start a new venture with a small-business loan from Sam's Club. This year, Walmart even started to test selling a life insurance policy."

Big retailers aren't the only new-ear competitors. Other companies have sprouted up to offer, for example, easier credit to small businesses at super-high rates.

All this is a form of shadow banking. The regulatory situation is much less cut-and-dried, and at some point the CFPB will likely take an interest. Still, banks would be wise to figure out what all this means to them. Do they want to give up the low-end of the retail business spectrum? If not, how can they compete?

Some banks have moved into the murky market for direct deposit loans, which represents a new revenue source, though critics deride the service as dressed-up payday loans. That reflects the tricky issues, even philosophical issues, that loom for bank boards to mull.

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