There always have been, and always will be, money lenders, from the biggest international banks down to the corner pawnshop. Although banks traditionally have taken on this role, they also have expanded their business by offering other financial services, which has allowed additional growth and profits. The ability to offer financial services is no longer the private domain of the banks, however. In fact, we see more and more companies offering financial services, especially the extension of credit.
Manufacturers have been offering financing for their products since the 19th century and we all know the contribution that lessors make in this regard. Other businesses, such as insurers and brokerage houses also offer financial services, which at least is in the general purview of what they do. What is changing, though, is the number of companies without any financial orientation that are beginning to offer financial services on their own. According to a Bank Systems & Technology article, technology is making much of this possible, as these companies can offer financial services without having to build heavy infrastructure. The combination of regulatory ease of entry, technology, and opportunities to steal niche markets from the banks has created a recent proliferation of these nonbanks.
Many of the companies without any financial orientation that offer financial services are doing so through industrial loan corporations (ILCs) based in Utah and California. ILCs in Utah include not only traditional financial services companies like CitiCapital, CIT and GE Capital, but also BMW, United Healthcare, and Target. Many of these companies, such as Target, see opportunities to create customer loyalty by offering credit. Wal-Mart is another retailer that has filed an ILC application in Utah.
Although its application has not yet been approved, Wal-Mart has been the lightning rod for concern amongst banks, as they see banking branches in every Wal-Mart across the country. Even the Fed has weighed in on the subject with Federal Reserve Governor Mark Olson saying that he is alarmed by the proliferation of ILCs, and Fed Chairman Ben Bernanke questioning the soundness of allowing a loophole that erodes the banking/commerce barrier.
The question for you, however, is the impact on leasing. Yes, Wal-Mart will probably start out managing its own credit card business, but may quickly expand into other areas once it spots the other consumer opportunities. From there, how long until it sees opportunities in commercial leasing? (Target Bank, for instance, was established to offer commercial accounts.)
There are too many retail casualties of Wal-Mart’s expansion and ambitions to count. Can they do the same thing to leasing? Hmmm – Wal-Mart Leasing. Should we be concerned?
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