Wednesday, November 14, 2012

Big Box Retailers entering the banking business

The New York Times reports that big box retailers such as Costco and Walmart are aggressively moving into areas that were once the exclusive domain of banks.  Offering financial products ranging from prepaid debit-type cards to home equity loans, these companies, according to this story, are interested in providing their existing customers with additional services to provide a type of one-stop shopping.  One benefit of this approach is that people who are under-served by traditional banks (most likely because they are risky borrowers) will be extended credit.  One downside is that financial transactions by retailers are only loosely regulated and so are susceptible to abuse.  Long-term, with homeowners today locking themselves into mortgages with incredibly low interest rates, the past practice of refinancing an existing home mortgage to tap into the liquidity of the family residence will become less common since no one will want to trade an existing low interest mortgage with a new one at a (presumably in the future) higher rate.  This might create a big market for other types of loans that are secondary to the mortgage.  Major retailers seem to be positioning themselves to fill this coming demand.

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