Wal-Mart Customers Access Loans

Wal-Mart Stores has long faced opposition to its attempts to break into the lending business. So the retailer’s founding family has found another way to get credit to many of its customers : Progress Financial Corp.

One of a growing number of financial institutions serving Hispanic customers who don’t have bank accounts, Progress Financial is run by a former Wal-Mart executive. A Wal-Mart director sits on the lender’s board, and the Walton family’s venture capital firm is its largest shareholder.

During the past decade, Bentonville, Ark.-based Wal-Mart has expanded its offering of financial services to customers yet has been unable to get a bank charter amid resistance from U.S. lenders and unions. With Progress Financial, the world’s largest retailer can put money in the hands of a key group of customers, if only indirectly, through a network of more than 80 branches. Those branches make loans of as much as $3,500 and are located a short drive from Wal-Mart stores where the money can be spent using purchase cards.

“We had always hoped there would be some relationship with retail,” said James Gutierrez, who founded Menlo Park, Calif.-based Progress Financial in 2005 and was chief executive officer until last year. “Wal-Mart is the low-price leader and that appeals to a certain demographic. There’s a lot of overlap.”

The Waltons’ VC firm, Madrone Capital Partners, “saw we could build a relationship with these customers,” Gutierrez said in a June 26 telephone interview. Gutierrez now is a partner at Insikt Ventures, a San Francisco-based VC that has invested in lending companies, including one that also caters to customers who don’t use traditional banks. Gutierrez said he remains the biggest non-VC shareholder in Progress Financial.

Borrowers can opt to receive their $500 to $3,500 loans on purchase cards, which can be used like debit cards at stores. They can make loan payments weekly or bi-weekly at the lender’s own branches or at retailers including Wal-Mart, 7-Eleven and CVS Caremark.

San Francisco resident Sandra Perdomo, 38, spent about $300 of her Progress Financial loan on a variety of items at Wal-Mart, she said during a visit to her local branch on July 1. Victor Morales, 30, a resident of Los Angeles who borrowed $1,800, said he uses his loan “like a debit card.”

“They give me the money when I need it,” he said during a visit to his local branch in Los Angeles on July 1.

Closely held Progress Financial isn’t a bank and can’t take deposits. So it has borrowed at high interest rates from hedge funds to make loans, Gutierrez said. The lender also has raised venture capital, including from the Waltons’ Menlo Park, California-based Madrone, which has invested tens of millions of dollars in it, public filings show.

“As we got larger, they saw a growth opportunity and decided to put more in,” Gutierrez said.

Last year, Madrone, which typically invests in alternative energy technologies, significantly boosted its ownership in Progress Financial, he said. In April of last year, two weeks after announcing Gutierrez’s departure, the lender announced that Raul Vazquez, previously Wal-Mart’s executive vice president of global e-commerce, would be the new CEO.

Wal-Mart accepts Progress Financial purchase cards and allows borrowers to make loan payments at its stores, though the retailer currently has no direct relationship with the lender, said Dave Tovar, a Wal-Mart spokesman.

Madrone’s investment in Progress Financial and Wal-Mart director Aida Alvarez’s place on the lender’s board are “separate and apart from Wal-Mart,” Tovar said.

Madrone didn’t return messages seeking comment, including one left with partner and Progress Financial board member Tom Patterson. Vazquez, through a spokesman, declined to comment.

Operating in an already tight credit market, Progress Financial is part of a startup industry targeting what it estimates to be 23 million U.S. Hispanics unable to get traditional loans because they have limited or non-existent credit histories.

Making loans under the brand Progreso Financiero, the lender is regulated by the states where it operates — California, Texas and Illinois. It has more than 250,000 customers and has said it plans to have 1 million by the middle of next year.