On a recent shopping trip to Costco, Lilly Neubauer picked up paper towels, lentils, carrots — and a home mortgage.
While Ms. Neubauer, 27, said she was surprised to find the warehouse club selling financial products, she and her husband saved about $200 a month by refinancing there this year. She also bought home insurance from Costco, she said, again because it was cheaper there.
“It opened us up to the fact that Costco is more than toilet paper,” said Ms. Neubauer, who lives in Dallas.
As the nation’s largest banks stay stingy with credit and a growing portion of the population has no bank at all, major retailers are stepping into the void. Customers can now withdraw cash at an A.T.M. with a prepaid card from Walmart, take out a loan at Home Depot for a kitchen renovation or kick-start a new venture with a small-business loan from Sam’s Club. This year, Walmart even started to test selling a life insurance policy.
Consumer advocates are torn about the growth of this shadow banking industry. Financial products are making it into the hands of people who otherwise might not qualify for them, but these products are not always subject to the same regulations as bank products are. And to turn a profit, retailers generally have to charge more to people with poor credit or none at all.
“These products can come with high fees and few real protections,” said Norma P. Garcia, a senior lawyer with Consumers Union.
For the retailers, banking products are not huge profit centers but a business strategy, meant to put money into customers’ hands and get them buying more.
“You’ve got to remember, Walmart is intended to be a one-stop shop,” said Charles M. Holley Jr., the company’s chief financial officer.
Retailers were once interested in actually becoming banks. Sears, in the 1980s, tried a “socks and stocks” strategy that included acquiring the Dean Witter brokerage firm. And Wal-Mart Stores sought a banking charter for almost a decade before finally abandoning the quest in 2007.
While supermarket chains have leased space to bank branches for years, they are now offering their own products or teaming with small financial firms to do an end run around big banks. While the banks are likely to bristle at such competition, supporters of the retailers say the stores are stepping into areas that banks have abandoned.
“The banks kind of dropped the ball, and in my mind, and in the consumers’ mind, they left it open for different approaches,” said Robert L. Phillips, a professor at Columbia Business School.
Part of the lure is the so-called underbanked population — people who use few, if any, bank services. The Federal Deposit Insurance Corporation estimates that roughly 10 million households in the United States do not use a bank, up from nine million three years ago. And the agency says 24 million more households have a bank account but still use nonbank financial services, like prepaid cards.
Mr. Holley said that 20 to 25 percent of Walmart customers were unbanked.
“The more kinds of services we can offer our core customer like that, the better for them,” he said.
Last month, Walmart unveiled a prepaid card with American Express. The card operates much like a debit card except that it is not attached to a bank account. It comes with free customer-service telephone support, and fees are relatively low, but the account is not backed by the F.D.I.C.
Frustrated with the fees charged by her bank, Nancy Fry, a real estate broker in Logan, Utah, bought a prepaid card from Walmart this year. But this was even worse, she said — she was charged $3 every time she loaded money onto the card. “I really don’t have very much money and can’t afford these fees,” she said.
Consumer advocates complain that prepaid cards are loosely regulated and can cannibalize the money put on them. Consumer lawyers have pushed for greater disclosure of fees and more stringent regulation of the card providers. The government is expected to issue new rules this year.
Walmart began to test selling a one-year MetLife life insurance policy this year, and customers can wire money or pay bills at any Walmart store.
Costco is also courting customers who are fed up with their banks. “A lot of members think their bank fees are too high, or the trust level has gone down over the years, or they’re having issues with debit and credit cards,” said Jay Smith, Costco’s director of business and financial services.
Costco sells auto and homeowners’ insurance, offers credit card processing for small businesses and began making mortgages in late 2010. It does not make money on the mortgages, which are offered by small lenders, Mr. Smith said. The idea is to get people to renew their store memberships, where Costco makes a large chunk of its profit.
Home Depot, whose customers are mainly homeowners, is trying to increase sales by extending credit to people who would otherwise have trouble getting it. Last year, the company began offering loans of up to $40,000, and this year it extended its no-interest credit card payment terms. “We have the ability to get credit to consumers in this tight credit market, and we wanted people to take advantage of that in a market where people don’t have access to home-equity lines of credit like they used to,” said Dwaine Kimmet, Home Depot’s treasurer and vice president for financial services.
Mr. Kimmet said the loans were especially useful for people who needed emergency items, like a water heater, though shoppers use them for other home décor projects as well.
They are also helpful for Home Depot, whose sales growth has been squeezed by the housing crisis.
Mr. Kimmet said the store loans, unlike home-equity lines of credit, did not require collateral, meaning Home Depot could not seize someone’s house for a failure to pay.
The interest rate on Home Depot’s credit card is higher than that on a typical credit card — 18 percent to 27 percent, depending on credit score, compared with an average of 14.59 percent, according to Bankrate. But Mr. Kimmet said the retailer offered cards to people with credit scores as low as 600, below what many lenders accept.
Other retailers are also trying to make it easier for people to qualify for financial products. Office Depot and Sam’s Club offer loans backed by the government’s Small Business Administration, and both involve quick, one-page initial applications. More than 1,000 Sam’s Club members have used the program since its introduction two years ago, the company said.
When Kent Prater was about to open a restaurant in Lumberton, N.C., he searched online for loans backed by the Small Business Administration and found that Sam’s Club sold them. He applied online for a $25,000 loan and was approved for a $10,000 loan, with an interest rate of about 10 percent. With a bank, “I think it would probably be a little bit more difficult, because of the environment — the economy and the regulatory environment,” said Mr. Prater, who opened Thai Chili last month.
Paco Underhill, who researches shopper behavior as founder and chief executive of Envirosell, said retailers offering financial products was only the beginning.
“The banks are going to scream bloody murder when retailers try to obtain banking charters,” he said. “But it’s not hard for a retail organization to look across the landscape and say, ‘Who are my customers, and what else could I be selling them?’ ”
“Over the past century, researchers have tried to relate the perception of dissonance to the underlying acoustics of the signals,” says psychoacoustician Marion Cousineau of the University of Montreal in Canada. In a musical chord, for example, several notes combine to produce a sound wave containing all of the individual frequencies of each tone. Specifically, the wave contains the base, or “fundamental,” frequency for each note plus multiples of that frequency known as harmonics. Upon reaching the ear, these frequencies are carried by the auditory nerve to the brain. If the chord is harmonic, or “consonant,” the notes are spaced neatly enough so that the individual fibers of the auditory nerve carry specific frequencies to the brain. By perceiving both the parts and the harmonious whole, the brain responds to what scientists call harmonicity.
