Walmart Bank

How Wal-Mart and Google could steal young customers from traditional banks

It used to be that the JPMorgans of the world only worried about losing customers to Wells Fargo or Bank of America. But that universe of competitors has grown to include T-Mobile, Wal-Mart, Google and a host of other retail, tech and telecom companies that are now operating like banks.

These upstarts are gaining footing in the banking world with prepaid debit cards that customers can use to pay bills, make purchases and deposit checks via a smartphone camera -- pretty much all the things you can do with your traditional checking account. And they are piquing the interest of a highly coveted group that traditional banks have struggled to attract: young people.

A new survey of nearly 4,000 Americans by Accenture found that 72 percent of people ages 18 to 34 would bank with Wal-Mart, Google or T-Mobile if they offered banking services. Of the nearly two dozen companies that researchers asked about, people were most willing to sign up with Square or PayPal because of the relationships they already have with the companies. Nearly one-third of those polled said the same about T-Mobile, Costco, Apple and Google.

These companies possess a few things that could really pose a threat to banks: an existing customer base, scale and an ability to quickly adopt new technology.

Take T-mobile, which has 49.1 million wireless customers, an established base for the telecom to pitch its prepaid debit card. Many of these folks use T-Mobile's prepaid wireless phones (15.5 million) for the same reasons that make prepaid cards attractive: There's no credit check and no long-term contract. And with more people using their mobile phones to transfer money or take pictures of their checks for deposit, having the same provider manage most of the steps in that process could be appealing.

The biggest game-changer for traditional banks is Wal-Mart's incremental expansion into consumer banking. The world's largest retailer has rolled out everyday low prices on check cashing, money-transfer and checking accounts in the last few years. When Wal-Mart teamed with American Express to launch the prepaid Bluebird card as a low-cost alternative to checking accounts, the pair attracted one million customers in less than a year.

Wal-Mart fought to get a bank charter years ago, only to be foiled by lobbyists who were dead set against having the retailer go head to head with traditional banks. But Wal-Mart may be getting the last laugh as it reaps the benefits of being a bank without the headaches of being regulated like one.

These outside threats are coming at a bad time for banks. Slow growth and high regulatory costs continue to put pressure on banks' return on equity, a measure of the bank's ability to squeeze profits out of shareholders' money. And while alternative payment technology may appeal to the digital unit at a bank, the folks in the card division may worry that it could cannibalize revenue, researchers at Accenture said.

Banks still have a leg up in the digital world, with vast amounts of customer and transaction data and experience in security, regulatory compliance and payment processing -- all of which are difficult to replicate, Accenture said. But the pedestals that once held the industry high off the ground and away from outside competitors is starting to crumble.