Walmart Prepares to Offer Low-Cost Checking Accounts | Hacker News Reader

Walmart Prepares to Offer Low-Cost Checking Accounts

nytimes.com

39 pointsspking49 comments

In the UK "checking accounts" (called Current Accounts) are free. With so called "Basic Current Accounts" (accounts with no overdraft/borrowing facility) being available even to people with horrible/no credit at all.

The way UK banks make money on current accounts is via interest (the difference between the Bank of England rate and their rate, the spread). They can also charge non-basic current account customers for things like unagreed overdrafts and so on.

I don't really understand why current accounts in the US cost $12-8/month. It isn't like "checking accounts" in the US have much better interest rates. So they're likely double-dipping (getting $ off of the spread AND fees).

Plus a lot of US banks require you to have a savings account with $x in it on top of your "checking account" just to waive the fee. Which means they're still double dipping there too, the spread on both the savings in the savings account (their "savings" accounts have horrible interest rates) and any money in the "checking account."

This is also making it easy for fraudsters to move money. Since there are no "basic bank accounts" for the poor, throw-away/burner debit cards have become common which fraudsters can move stolen money onto and then spend it freely (as those cards have no ID check, etc).

Don't even get me started on how big of a scam the throw-away/burner debit cards are. Before you get someone one you should check out the fine print in terms of fees that mysteriously eat up any remaining balance. Aside from the risk of bankrupsy and loss of interest, normal gift cards are less of a scam.

That's why many of us dumped banks for credit unions. Most credit unions offer free checking accounts and much better interest rates and customer service. The major banks were rocked by the 2007 meltdown and are still trying to recover.

> I don't really understand why current accounts in the US cost $12-8/month.

Mostly, as a way of dissuading customers whose support costs exceed provided revenue; its not so much to make money on the fees as to make people who can't afford to do what the bank wants (do their main deposits by direct deposit, maintain a certain minimum balance, maintain a savings account with a certain minimum balance, etc.) choose, from the expense, not to have an account at all.

The US has for at least several decades had substantially greater wealth inequality than the UK (both before and after considering the effect of taxes and government assistance), and that has affected the way business approach the desirability of customers.

Here in Canada they charge that cost only when you don't have a minimum balance in your account. So they idea is you either provide them with enough to collect interest or they take that fee from the account (and of course, the fee is far more than interst on the minimum balance would be, so functionally it's a monthly "fine" for going below your minimum).

By way of comparison, the US bank that I work for (Capital One) offers checking accounts that have no monthly fees, no minimum balances, and even pay interest.

HOWEVER, they will not offer them to all customers. Customers who have a sufficiently poor credit rating (we consider various factors) or other issues such as a history of writing bad checks or of engaging in bank fraud will be rejected for a normal checking account. The costs and risks of supporting such customers exceed the potential benefits.

(NOTE: I am not privy to the details of the actual underwriting criteria, nor would I be authorized to disclose them if I DID know them. But if we reject someone for a banking product based on credit information we are required by law to let them know what information led to that decision.)

[Edit:]

Oh yes, and I forgot one of the more important reasons why you can't get one of our accounts. Because you are an "illegal alien" (anyone without a legitimate tax id). That constraint will also affect Walmart's new offering. Solving the problem of the "unbanked" in the US is much harder than you might think. But this new offering by Walmart will help.

> I don't really understand why current accounts in the US cost $12-8/month. It isn't like "checking accounts" in the US have much better interest rates. So they're likely double-dipping (getting $ off of the spread AND fees).

That 12-8/mo is typically a fee for not having an average minimum balance, or not having direct deposits in a given month.

I think it's their attempt to recoup the management overhead of having the account vs. the interest they earn on it.

There are still plenty of US financial institutions that offer free checking accounts. They often charge ridiculous fees for things like overdrafts. But Credit Unions tend to be slightly better than banks. I have been using Simple.com in addition to my local Credit Union account for over a year now and I'm very satisfied.

UK current accounts are free, but I don't think they're accessible to all. Like the US, I think if you don't have enough credit history (or poor history) it's difficult to get an account.

With all due respect did you read my post at all? I literally cover this topic on the first line, second sentence.

TL;DR: That's what basic current accounts are for.

I _did_ read your post. But it was still my understanding that not everyone can get an account as easily as you describe. If you show up to the UK (as I did >10yrs ago) from the US with NO credit history, no lease (b/c of company rental), only US financial info, etc, it's NOT quite so straightforward to even get those "basic" accounts. I always assumed this was because of the specifics of the anti-money-laundering laws that are on the books in the UK.

(I've been working with a startup here in the UK that's trying to solve this and some other similar problems, which is why I even brought it up.) Not entirely sure why I got downvoted for my original comment, but c'est la vie.

The reason is bigger banks basically don't make any money off low balance accounts.

Interest spread earnings are minimal and the Durbin Amendment (2010) basically killed debit card interchange as a revenue stream for banks with over $10b on the balance sheet. Smaller banks and credit unions can still make a good amount of money off uncapped debit card interchange, so they do offer free accounts.

This article is making a much bigger deal out of this than it is. Walmart has entered into a marketing agreement with GoBank prepaid cards. You can already get one at gobank.com, sans Walmart.

It offers some, but certainly not all, of the benefits of a checking account. For starters, they don't give their customers checks (so it's not a checking account). These accounts cannot send or receive wire transfers (though they can receive direct deposit or any other ACH-based credit, such as those from PayPal). It also supports ACH debit, and it has a form of of a bill pay service that uses PayPal to pay any phone number or email address. You can also have the service print and send a physical check directly to anyone, but I believe it takes more than a week. Calling it a checking account is a misnomer at best.

Some may not realize this, but YC startup Loopt is a big part of this. After being acquired by Green Dot they built the GoBank product, which is what Walmart will really be offering here.

Most credit unions still give free checking accounts.

http://www.bankrate.com/finance/checking/want-free-checking-...

Meanwhile I got something in the mail enticing me with $300 to open a checking account at Capital One.

Capital One 360 (formerly ING Direct) also offers free checking and savings. I have not used my associated checking account in approximately 8 years of being a customer and I've never been charged a fee.

You can almost taste the irony of the hated, exploitative megacorp Walmart doing more to help poor people and put a check on cheque cashing places than any politician ever.

The real problem with check-cashing places are payday loans. Low-cost checking accounts from Walmart won't stop those.

I don't know. It seems to me that a good entrepreneur would see the proverbial "writing on the wall" here. If I were a proprietor of a check cashing establishment... I would think that now might be a good time to cash out... before the writing gets any more clear.

Alternatively, it might be good to seek out a service that you can offer that would be a complement to what you expect the Walmart service to evolve into. I don't know what that complement would look like... but I do sense that it is likely pretty profitable.

In any case, the WORST thing they could do is sit still and assume business as usual. I mean, there is clearly a train coming...

it's time to get out of the way.

This service is largely thanks to politicians banning opt-out overdraft fees on debit and ACH credit cards in 2010.

But thanks to that change, you can get basically the same service from a credit union for a one-time $5 membership fee. If you're over the $500/month deposit bar, you should definitely be using a credit union.

The whole idea of not offering checks except as the bank can issue them is a really good one though. I hope to see credit unions emulating that bit. (Just, not the $9/month fee, which is better than overdraft fees since it's predictable, but it's still exploitative since we're talking about people who are fundamentally bad at predicting their finances.)

Remember that Walmart is hated because it appears to be helping on the surface, but is in fact exploitative below the surface. So... remember that when you evaluate this new offering. I'm going to lean suspicious for now.

There is no reason to be suspicious -- their motives are clear. Exploit the high-overhead banking economy with lower-cost offerings for their target demographic.

Their target customers end up living a life filled with transactional cost. They might pay bills by buying money orders, get paychecks cashed at check cashing stores. On top of that, they can be time-poor, in that without a reliable car or without money for gas, they genuinely cannot get across town to a bank location, or travel an extra few miles to save money on some staple product. [1]

So, right now, there is a significant cost associated with having no checking account.

Therefore, if Wal Mart can bring them into their own system, any overhead they save the customers can come right back into the store. If they can offer the accounts without a financial loss, it's a no-brainer. Even if they have losses on the checking accounts, they might make it up by having physical bodies at Wal Mart more often each month.

[1] "The High Cost of Poverty" http://www.washingtonpost.com/wp-dyn/content/article/2009/05...

PS: Of course they could be evil, but there's no reason they would have to be.

That's not the motive, that's the method.

Cribbing from the article, one possible motive:

In an uneven economic recovery, Walmart is also pushing to win back customers it is losing to lower-price retailers

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

The fee seems a bit egregious, even for commercial banking. My bank never charged me for a checking account, and even reimburses ATM fees.

ditto. Always been free for me. I didn't know that wasn't the norm.

It is the norm, unless you're poor...

It would be interesting as a study to go through and calculate how much more a poor person pays per year for the same level of service just because they're poor (e.g. higher car payments, no 0% APR offers, account fees, etc).

Upshot at the NYT did an article on checking fees through this lens recently:

http://www.nytimes.com/2014/09/21/your-money/in-checking-acc...

Not sure if it's paywalled, so the gist is that for relatively affluent folks, the annual cost of a checking account is ~$18. For the "cash-strapped" it's closer to $500.

Obviously that's just checking accounts, but I wouldn't be surprised to learn that many other things are more expensive for the poor as well.

That $18 is probably just the cost of checks, too. I have never paid for a checking account, but one of the reasons why is that the "free" stuff requires a minimum balance (Wachovia --> Wells Fargo) at a lot of banks. I have had an eTrade bank account since around 1997 when I signed up with Telebank, and have been very happy with them, too. They refund all ATM fees, and it's easy to keep it adequately funded via scheduled transfers from my primary bank (which conveniently also holds my mortgage), and since my employer uses eTrade to service its ESPP and Options programs, it's convenient to make trades there, too.

If you have less than $x balance or $y/mo in direct deposits, most banks charge a fee. Because what someone who makes less than $1,000/mo really needs is to pay over $100/year for a checking account. That's not including all the likely overdraft/returned item fees someone with an average balance of less than $1,000 is likely to achieve.

How it doesn't violate usury laws to charge someone $35 for a $5 overdraft, I'll never understand.

Didn't the gov't kill the usurious overdraft charges? I don't follow American news too closely anymore but I remember hearing rumbling about that... iirc that's why American banks started moving over to the model I see here in Canada - large minimum balance or ~$10/mo in monthly fees.

I'm not sure about the overdraft charges, but they did require the default for debit cards to "deny" a charge if it would result in an overdraft. So I won't overdraft my account by accident if, for example, I try to buy a $2 drink before my paycheck clears. (Happened once...)

There are many banks where this isn't the case and you should never pay for a checking account, regardless of how much money you have coming in every month. I even have a Wells Fargo (canonical "big bank" example) checking account that has been sitting with $16.09 for the past 6 months.

Do not pay for a checking account, ever. If your bank is charging you a fee for your account, call them and say "I can get a free checking account at X competitor, I am going to switch to them unless you can match that."

Hell, Charles Schwab offers a free checking account and will refund ALL ATM fees every month.

I'm in the US, and I did a lot of research on banks and checking accounts about a year ago when I was trying to find the best setup (for me).

I hardly ever go into a bank branch, so I was willing to sacrifice having that possibility if it meant lower fees and less service.

I found four good possibilities, and I would recommend any of these to others if you can get them (drawbacks/caveats in parenthesis):

1. Charles Schwab (lowest limit on mobile check deposits, was $2000/day max when I checked) 2. USAA (available to family members of military only when I checked) 3. ING Direct (later bought by Capital One and renamed to Capital One 360 - this is what I now use) 4. Simple (formerly banksimple, now just simple.com)

I was on the waiting list for Simple, but before they gave me the invite I ended up getting set up with ING Direct, and even though they are now Capital One 360, nothing about the program has changed and it meets all my needs - it's great! The best parts, besides the no monthly fees etc which was a prerequisite for me, is they give you a small credit line attached to your primary account ($500 to start though you can ask for an increase if you want), and if you do happen to overdraft they just charge you interest based on the overdraft amount, which ends up being a few pennies at the end of the month - no overdraft fees at all. If you don't have the credit line or you go over, the transactions are just declined.

I still have a Charles Schwab account, because in addition to no monthly fees, they refund ALL atm fees from anywhere, even the ones that the atm owners charge. You can literally use a $10-fee atm at like disneyland or on a cruise ship, and they will refund the fee. I keep a small amount of cash in here for when I want to get cash from an ATM and don't want to look for one that is feeless for my regular bank (Capital One 360 which uses AllPoint atms so they are plentiful, but hey my laziness knows no bounds)

I was never able to try USAA despite hearing great things because no one I know was in the military.

I was planning to switch to Simple once I was able, but ended up staying with Capital One 360 since it's great. Oh yeah, another awesome feature you don't get anywhere else, that started with ING direct but capital one has kept it, is you can open an unlimited amount of savings accounts. It's really one savings account in the background, but they treat the amounts separately as if they are separate accounts, so from the front end it seems that they are. This is awesome for setting up savings goal, automatic savings deductions for various purposes (like quarterly tax estimates if you are self-employed), etc.

The stupid employer I'm at wouldn't let me sign up for direct deposit until I had been working here for 6 months (I know, what kind of policy is that, right??) -- and even though it's the highest mobile check deposit limit I could find, Capital One 360 still has a $3000-per-check limit on mobile deposit. My employer not only wouldn't let me get direct deposit right away, but pays monthly, so since my paycheck was bigger than the limit I was forced to go back to a "regular" bank for a few months.

So I got a Bank of America account. They charged me $12 a month for the privilege of using their services without having direct deposit set up (if I could set it up I wouldn't need them!). Closed that account as soon as I was able to get direct deposit, which I set up for my CO-360 account. Branch manager of BoA was disappointed (ha).

I did move to a new apartment in the middle of that, and needed a cashier's check or money order for the deposit. Years past had always just gotten a cashier's check from my bank, they usually let you do like one a month for free if you had an account -- nope they don't do that anymore. $10 fee. (Screw that, went to Walmart and got a money order for 49 cents). Also asked about notarization -- don't need it right now but since I was asking about cashier's checks anyway thought I'd ask if I could still get something notarized if I had an account -- nope sorry, they do have a notary but they are only allowed to notarize official Bank of America documents. Wtf??

Anyway, my BofA account is closed as of a few weeks ago, and I couldn't be happier to not be their customer anymore. Fully set up with direct deposit to Capital One 360 now, and that's where I intend to stay for the next decade. (Unless they start screwing up their deal in which case I'm sure simple would still love to have me -- only thing I don't like about them is I prefer having a mastercard debit card rather than visa)

Hope any of this info is useful to somebody.

>>I was never able to try USAA despite hearing great things because no one I know was in the military.

You don't need to know anyone in the military to open a checking account with USAA.

However, features like mobile check depositing are only available to "qualified members" (i.e. those with a military connection).

Although they removed that restriction in 2009, I believe that they re-restricted their banking to military affiliated persons as of a few months ago.

Are you sure? I have looked into several of these things, and I could have sworn their application asks for some kind of military personnel number.

For years, USAA didn't require military affiliation. That is no longer the case.

> I was planning to switch to Simple once I was able, but ended up staying with Capital One 360 since it's great. Oh yeah, another awesome feature you don't get anywhere else, that started with ING direct but capital one has kept it, is you can open an unlimited amount of savings accounts. It's really one savings account in the background, but they treat the amounts separately as if they are separate accounts, so from the front end it seems that they are. This is awesome for setting up savings goal, automatic savings deductions for various purposes (like quarterly tax estimates if you are self-employed), etc.

Simple also does this via their "Goals" feature. You set a goal amount and due date, and they move a daily amount from your displayed available balance into that goal.

Nice analysis, as someone who is currently going through the same process, as there any reason you didn't include ally which actually pays interest on checking accounts and has some pretty nice perks?

http://www.ally.com/bank/interest-checking-account/

I'm not sure why Ally was not included but in my opinion Ally is one of the best online options out there. They have every feature you'd want in an online bank, their interest rate is one of the best out there, they reimburse all ATM fees within the USA, and their customer service is great.

I'd suggest going on nerdwallet or a personal finance blog to get an idea of all your options as I would definitely not include Simple in the upper tier of online options (at least in current state).

> I was never able to try USAA despite hearing great things because no one I know was in the military.

You don't have to know someone who is in the military; you either have to be in the military or be directly related to someone who is a USAA member[0]. So if your grandfather served in the military and joined USAA, your father could become a member based on his relationship with your grandfather, and you could become a member because your father is a member.

This is how I was able to join. My grandfather was in the Navy and was a USAA member. My dad joined way back before I was born, and I joined when I was in high school.

At first, I just used their car insurance products. After college when my bank (Regions Bank) decided to start charging me all kinds of stupid fees, I switched my checking over to USAA. As time has gone on, I've moved almost all my financial products over to them. Several checking accounts, several savings accounts, a credit card, investments, etc.

They are, without a doubt, the best "bank" I've ever worked with.

There's only a few things left that I'm not with them on: my homeowner's insurance, which I'm about to move over to them after a nasty experience with Liberty Mutual, and my daughter's 529 college saving plan, because you only get the tax benefits in this state if you use the state's 529 program. I also have a Simple account, mostly because I wanted to check them out, but I almost never use it.

[0] https://www.usaa.com/inet/pages/pub_eligibility_task_entry

A bit off-topic, but arguably relevant: USAA has just about the best customer-service operation I've seen. I'm a 40-year member, and my dad was a member for 50-plus years. When he died, almost all of his financial accounts were at USAA; their survivor-assistance group was, in a word, marvelous.

USAA originated as an insurance association of active-duty military officers, who had a tough time getting insurance elsewhere. IIRC, to this day it's run largely by retired officers (and now, retired senior NCOs as well) who had major responsibilities during their active-duty careers. I get the impressions that much of its culture of service comes from that.

Charles Schwab's mobile deposit limit varies depends on the user and probably a variation of factors. I know someone with a mobile deposit limit of $1,000. When I first opened my Schwab checking account, I had a deposit limit of $10,000, and has now fallen to $5,000, which, in comparison with the stats shown on this page:

http://www.mybanktracker.com/news/2014/03/19/comparing-mobil...

is still pretty good. Fidelity also offers a Money Management account that can essentially function as checking account, and has comparable features as Schwab (refund all ATM fees worldwide, for example), and according to the Fidelity site, their daily mobile deposit limit is $25,000.

>>I still have a Charles Schwab account, because in addition to no monthly fees, they refund ALL atm fees from anywhere, even the ones that the atm owners charge.

This is a complete and total deal-winner for me. Being a frequent traveler (and currently living in Vietnam), I can just withdraw my cash in the local currency from any local ATM and have all fees reimbursed.

It's incredible. I average a $30-40 rebate every month and have seen it as high as $50 at times. So key.

I've been an ING direct / CO360 customer for a while. Though they've streamlined the process a lot, every savings account you open with them is separate -- they each have their own account number which you can use to wire money into or out of the account from another bank.

Go to a credit union. Free.

Seems they're taking a page from Loblaws and PCFinancial.

http://pcfinancial.ca

I havent worked at Loblaws for a long time, but I still use them.

I have to say, while I like the prices on their products, all the PC family of non-food services drive me batty with the most amazingly awful customer service I've ever seen in that sort of service. Individually the CSRs are generally friendly, but collectively their processes are awful. The phones, the credit cards, etc.

I still use their services, of course, because I'm a chump and only encouraging them to continue treating me like crap.

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