Wal-Mart's plans aroused strong feelings

The retail giant had planned to create an in-house bank, known as an industrial loan corporation (ILC).

However, it decided to withdraw its the application with the US Federal Deposit Insurance Corp (FDIC) a government finance watchdog.

Its plan had been controversial and aroused strong feelings, but Wal-Mart said it had been "surrounded by manufactured controversy".

"Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers," said Wal-Mart's president of financial services, Jane Thompson.

Threat fear

The move had been firmly opposed by unions, consumer groups and some state-level banks.

They believed the move would threaten local businesses, although Wal-Mart said it has no plans to open branches or offer banking services to consumers.

Ms Thomson said: "At no stage did we intend to use the ILC to establish branch banking operations, as critics have suggested. We simply sought to reduce credit and debit card transaction costs."

She added that its existing financial services already offered customers considerable savings.

FDIC chairman Sheila Bair said that Wal-Mart's decision was a "wise choice".

"This decision will remove the controversy surrounding their intentions," she said.

Wal-Mart announced in July 2005 that it would apply to the FDIC - the watchdog which oversees and guarantees US banks and savings institutions - for a licence for a state-chartered bank in Utah.

It had said that it had no wish to compete directly with regular banks, many of which operate cash machines in its stores.

But critics were concerned that a Wal-Mart bank would, over time, expand into other areas, bringing it into conflict with other banks.

Thwarted

The FDIC decided to hold public hearings after it received more than 1,900 letters about the application.

Wal-Mart had intended that the bank would process in-store credit and debit card payments at its outlets.

Wal-Mart's application did have its supporters, including the American Financial Services Association.

The industry body, which represents credit card issuers, had argued Wal-Mart's move would bring much-needed competition and could help to lower credit card charges.

Previous efforts by Wal-Mart to move into banking, either through acquisition or partnership, have been thwarted by regulators.

It was trying to take advantage of a 20-year legal loophole which allows any company to operate an ILC in California, Utah and Nevada.