Wal-Mart's forays into banking services make its competitors nervous, as might be expected, but allow me to predict that it should make Wal-Mart shareholders nervous as well.
When I was at Bell Laboratories, AT&T went into the credit-card business with its "Universal Card," and I simply could not understand the logic of a stolid telecommunications company entering that business. A friend explained it to me; I can't recall his exact words, but they were along the lines of: "Money is a great business to be in. Customers can't call and complain that it doesn't work, and they have to give the money back to you after they're done using it."
Of course AT&T eventually discovered the rule that all other credit-card companies apparently already knew: a huge influx of new customers is profitable for the first two years, and then a slew of those customers default or even declare bankruptcy. Eventually AT&T left the credit-card business.
Most retail business maintain the disaggregation between hawking & and services and handling the financial details. Every once in a while a large retailer thinks it's discovered the magic formula that will let it aggregate all the pieces of the puzzle into its own hands. Remember when Sears purchased Dean Witter? So here's a long-range prediction: Wal-Mart would be better off with a disaggregated, component-based approach to financial services. Wal-Mart doesn't manufacture the paper clips it sells in its stores, and Wal-Mart should not make mortgage loans either — and if it does, Wal-Mart shareholders will eventually regret it.
Topics: · finance · predictions
Link to this story · Comment form · Blog Home
To leave a comment, please fill out this form.Comments are closed for this story.
Trackbacks are closed for this story.
