A Requiem for Sam's Bank

This paper situates Wal-Mart's failed application to form a banking subsidiary in the context of payments policy. Generally, I argue that permitting Wal-Mart to have a bank would have a salutary effect on the relatively uncompetitive market for payment networks. The dominant position of Visa and MasterCard, in which payments are priced above cost to subsidize credit, inevitably will give way to a world in which payment services are priced at cost, or even below cost as a loss-leader to attract customers to other goods and services. Entry into this market by Wal-Mart would be likely to spur more robust competition and thus lower pricing more rapidly.