January 29 2008: 4:08 AM EST
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Wal-Mart gets its bank - in Mexico

The retailer is pushing savings accounts for low-income customers.

By Carolyn Whelan

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Wal-Mart opened its first in-store bank in Toluca, Mexico, in November.
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(Fortune Magazine) -- For years, Wal-Mart tried to enter the U.S. banking business, but it gave up in 2007, pulling its application after endless outcries from domestic retail banks. Now it's found a more receptive audience south of the border. In November, Wal-Mart de México opened its first consumer bank, Banco Wal-Mart, in Toluca; the company plans to launch 80 more by the end of the year.

Toluca , a sprawling industrial town near Mexico City, seems like an unlikely place for Wal-Mart's maiden push into banking. But there, in a strip mall, beside a bakery and a beauty parlor, Norma Pacheco is mulling a Wal-Mart account. "I'd use it to pay for my Wal-Mart purchases," says Pacheco, a 42-year-old engineer. "The brand gives me confidence."

Pacheco isn't the client Wal-Mart de México is ultimately after. Mexico's biggest retailer, with 668 stores, wants to crack the low-income market in a country where just 24 percent of households have savings accounts, compared with 55 percent in Chile. Wal-Mart (WMT, Fortune 500) plans to boost sales via debit cards, later ease users into more profitable services like insurance, and make money on interest-rate spreads. Early signs are promising. Héctor Aguila, the bank's manager, says that about 40 percent of the new clients who have signed up at dedicated desks in the store since the bank's November launch have never had an account of any kind.

Wal-Mart's mission is to lure newcomers with easy instructions and entry points, like minimum balances of less than $5 and no commissions, compared with $100 minimums at competing banks. (But interest rates are only 1 percent, half what most banks pay, and Wal-Mart's annual rate for consumer loans is 75 percent.) The retailer, which opened three branches in Toluca, plans to have as many as 80 by the end of the year, before an even bigger push in 2009.

Wal-Mart is also eyeing the $23 billion remittances market - the amount sent home every year by Mexican immigrants in the U.S. Because it forged a cut-rate deal with MoneyGram (MGI), Wal-Mart is outpacing the overall growth in the money-transfer market, says Robert Dodd, an analyst at Morgan Keegan, but its share remains tiny. The retailer says it has no plans to revisit the U.S. bank market soon, though Jan Smith, managing director of InfoAmericas in M iami, says Mexico is "a good dress rehearsal."

Wal-Mart isn't the first bank to court Mexico's low-income earners. In 2002 appliances retailer Grupo Elektra started Banco Azteca. Today it has nearly 1,500 branches and more than seven million savings accounts. A spinoff from microfinance firm Compartamos followed in April with similar services and an IPO that was 13 times oversubscribed. But Wal-Mart's broad appeal, high traffic, and low fees give it an edge, analysts say.

The retailer's entry into Mexican banking follows reforms by the Calderón administration, which wanted to make it easier for low-income earners to open accounts. Now other big banks may try to get in on the action. Says HSBC (HBC) corporate accounts manager Julius Cardoza: "We're curious about Wal-Mart's strategy." To top of page