Excerpted from the retail issue of Exchange magazine.
Ten years ago, Wal-Mart faced a problem familiar to many retailers. Bank fees and even the terminology used to explain those fees varied across the company’s 1,500 banking relationships. In part, it meant maintaining a team that would exhaustively analyze statements to ensure that Wal-Mart was paying what it had agreed to pay. Then, when that team spotted a problem, it meant initiating a recovery process because Wal-Mart’s banks automatically debited the fees.
Today, Wal-Mart has no statement analysis team. And it generates its own fee payments to banks. That is because the company’s finance executives have worked with their bankers to eliminate an old problem with a creative new solution. Rebecca Garrett, Wal-Mart’s Senior Director of Financial Operations, recently sat down with AFP Exchange to talk about Wal-Mart’s simplified pricing project. In this Q&A, Garrett outlines the problem, details the solution and explains how Wal-Mart eliminated risk by identifying one bank that was willing to innovate.
AFP: Over the last several years, you’ve helped implement a pricing structure that eliminated the need for statement analysis at Wal-Mart. Can you explain your work in that area?
Rebecca Garrett, Senior Director of Financial Operations, Wal-Mart Stores Inc.: As you know, we have a large number of stores. We had approximately 1,500 banking relationships because each store has their own depository account. Each one of those accounts generated an analysis statement and could have up to 30 line items. We had individuals who were reviewing those statements and identifying any incorrect pricing, which happened frequently, though not necessarily through anyone’s fault. Then we would work with the bank to recover the fees, because at the time they were debiting our account for the fees. It was a time-consuming process for us and for the banks. We evaluated account analysis software, which is very expensive. And we determined that maybe we needed to look at (pricing) in a more innovative fashion. So, the thought was, for every $1,000 deposited, we would assign a factor and pay the bank that factor. Now, in the interest of being fair to the banks, we would allow them to run an analysis and do a comparative to make sure that the factor lined up with where their pricing was before. So they could take their total monthly fees off their analysis and divide by total deposits to see if the factor lined up. Once the process was established, then fees were calculated by us based on the deposits we captured in our system. Then, we would generate a payment to the bank. We eliminated the debiting of accounts altogether. In turn, we eliminated the recovery process altogether.
AFP: Can you explain the process of moving to the new pricing structure? Who was involved?
Garrett: The hardest part was convincing the first bank to try it. We did work with one of our long-term banking partners and convinced them that we needed to give it a try and see if it was mutually beneficial, which it turned out to be. They continued to run their account analysis, just to make sure the factor was in line. It just sort of took off from there. We were able to reduce our labor force by two full-time employees. And definitely we simplified the trending of pricing and the tracking of total bank fees. It really has been beneficial to us and to the bank. In conjunction with that, we also consolidated relationships. Today we have over 200 depository relationships. Not the 1,500 we once had. And 200 is still a lot of banks. But by virtue of where some of our stores are located, we can’t always consolidate. The process of moving to the new simplified pricing structure is still ongoing.
AFP: What sort of obstacles did you face along the way? Did you get any pushback from banks?
Garrett: I would say the biggest obstacle was just simply the paradigm in which we all existed. Getting past those paradigms was the biggest obstacle. Internally, I don’t think we encountered any obstacles. From Day 1 we all saw the benefit of taking this approach.
AFP: Is there risk associated with eliminating statement analysis? How do you mitigate that risk?
Garrett: My general statement would simply be that we eliminated risk because we now generate the payment, rather than allowing the banks to debit the fees from our accounts.
AFP: You’ve talked about this a bit already, but what has been this project’s payoff?
Garrett: The most immediate benefit was that we eliminated two full-time employees who were reviewing account analysis, keying thf line item prices into spreadsheets and comparing those prices with what was negotiated to make sure it was accurate. Another benefit is just the ease today of comparing Bank A to Bank B. There is so much variation in line-item pricing between banks. Sometimes it’s difficult just to compare the pricing, based on the terminology used. We now have the one factor, so it’s really simplified. We’re comparing apples to apples.
AFP: Do you have any suggestions for other corporates undertaking a similar project?
Garrett: I’ve had this discussion with a few retailers. I would encourage them to work with one of their more innovative banking partners and encourage them to just try it. Still run the account analysis to make sure everyone is where they need to be on pricing. And see how much simpler it is for both parties. And how much work is eliminated.
See also: How Wal-Mart's Disaster Management Strategy Changed After Hurricane Katrina
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