Wal-Mart Stores Inc. on Monday applied to organize a Utah industrial bank.

The retail giant already offers credit cards, money orders, money transfers and check-cashing services at its more than 3,500 stores nationwide. Setting up a Utah bank will allow the company to also process credit-card transactions instead of turning them over to third-party processors.

But many bankers outside Utah fear the move will allow Wal-Mart to further expand into personal banking, in which case their businesses could be harmed in the same way grocery and hardware stores get squeezed when a Wal-Mart opens nearby.

"Who knows what their business plan is for the long term," said Dale Leighty, who sits on the executive committee of the Independent Community Bankers of America. "If they eventually decide to try and [expand into the consumer banking business], we don't think it will be good for anyone."

Wal-Mart's pending Utah application represents the company's latest attempt in a five-year effort to get into banking. Previous plans to buy financial institutions in California, Oklahoma and to partner with a bank in Canada were thwarted either by federal or state legislators.

Utah, however, may offer Wal-Mart its best chance yet.

Wal-Mart is following the lead of other well-known companies such as General Electric, Merrill Lynch, American Express and Target that in recent years have set up their own industrial banks in Utah and have found themselves welcome.

And unlike their counterparts in many other states, Utah bankers generally get along well with their industrial bank colleagues and do not necessarily view them as unfair competitors. In a statement, Howard Headlee of the Utah Bankers Association said Wal-Mart's application did not pose a threat to traditional banks.

Industrial banks, also known as industrial loan corporations or ILCs, are found only in Utah and a few other states. They operate like banks with federal deposit insurance and can issue credit cards, take deposits and make loans. About the only thing an ILC cannot do is offer standard checking accounts if its assets exceed $100 million. At the end of last year, there were 29 Utah industrial banks. Combined they had total assets of more than $120 billion.

Commercial companies such as stock brokerages and retailers - companies that have a hard time owning full-service banks under federal regulations - find ILCs an attractive way to get into the banking business. Few Utah industrial banks, however, directly compete for consumer business; many were set up to process credit card transactions and to finance automobile loans. One Utah ILC, for example, only finances the purchase of taxi cab medallions or licenses in New York and several other cities.

In early March, Wal-Mart spokeswoman Marty Heires said the retailer's primary emphasis has been on inviting "partners" into its stores to offer banking services. It leases space in about 1,000 of its U.S. stores to bank branches that are similar to those found in other grocery stores or supermarkets.

She also noted that Wal-Mart was after savings on its credit card transactions when it offered to buy the savings and loan in Oklahoma and the industrial bank in California.

Utah Commissioner of Financial Institutions Ed Leary said the state typically will refrain from acknowledging it received an application to organize an ILC until it reviews all the documentation and declares the application complete.

"In this case, though, there is so much interest that we felt it would be best to acknowledge that we've received the application," he said.

Leary said it could be several weeks before Wal-Mart's application is reviewed.

Even if Wal-Mart does succeed in organizing its own Utah ILC, it still will face additional obstacles in placing branches in all its stores, if that is its intent.

Utah is part of a coalition that allows banks based in 17 other states to freely branch within one another's borders. But any bank that wants to branch into any of the remaining 33 states must first acquire an existing bank in the states it wants to enter.

steve@sltrib.com