On the supply side: Walmart sees fintech as a new profit center
Walmart has made no secret of its intention to expand financial services products to its buyer base. The retail giant has teamed up with several financial technology (fintech) startups with the aim of creating a “neobank” that will allow customers to manage their money at a lower cost.
Walmart announced in January 2020 a strategic partnership with fintech investment firm Ribbit Capital to develop and deliver affordable financial solutions. Ribbit’s investment portfolio includes Credit Karma, Affirm and Robinhood. Walmart has hired two Goldman Sachs executives to lead the new fintech company named Hazel.
Last month, Walmart acquired financial startup Even Responsible and One, a digital banking alternative founded in 2019 by Brian Hamilton.
Pending regulatory approval, all startups will operate under the ONE name, with Omer Ismail as CEO. The combined entity will have a workforce of more than 200 people and have more than $250 million in cash on the balance sheet to drive growth, according to Walmart’s Jan. 26 release.
“Consumers around the world are being left behind by the world of financial services,” said Ismail. “Our vision is clear: to build on the success of Even and One to deliver a product that gives consumers the best way to spend, the best way to access their paychecks, and helps millions of people save and make their money work.”
Walmart U.S. CEO John Furner told analysts on the Feb. 18 earnings call that fintech measures are helping consumers get paid early, spend, save, borrow and make their money work as ONE looked to develop a super app once deals were done in the first half of this year. The retailer said the ONE app will be integrated with Walmart’s physical and digital channels, providing options for its 1.6 million U.S. employees and more than 100 million weekly shoppers. As a standalone company and app, Walmart said one would be available to US consumers directly and through partnerships with other leading employers and merchants.
ONE will partner with Coastal Community Bank to offer savings, spending and borrowing services in one digital account.
Walmart’s investments in fintech also stem from the fact that millions of Americans do not have access to credit. Nearly 25% of American adults are unbanked or underbanked, and about 80% of fintech users rely on multiple accounts to manage their finances.
“Walmart is constantly looking for new ways to fulfill our core mission of helping our customers save money and live better lives,” Furner said. “Clients made it clear that they expected more from us in the area of financial services. Creating a simple, personalized app that allows users to manage their money in one place is the next natural step in achieving this. We couldn’t be more excited about what this will mean for Walmart customers, associates and consumers around the world as we try to help millions of people improve their financial lives.
Ben Jackson, COO of Innovative Payment Solutions, said retailers have long understood the need to provide financial services to their customer base.
“What retailer wouldn’t want to help consumers access money, and it’s never been easier because consumers have a bank in their pocket with their smartphone,” Jackson said.
Jackson said it’s an opportunity for Walmart to become a priority with its customers when it comes to financial services, and it’s another way to draw them into the retail giant’s ecosystem. He said the model Walmart uses with partnerships is strategic. It allows compliance to be outsourced to banking partners to understand that the merchant will do certain due diligence.
Jackson said it would be interesting to see how the new financial service unfolds, suggesting it may take time for consumers to get started with both feet.
“It’s very difficult to get people to change banks. But if Walmart can entice customers to try a service or tiptoe into the larger ecosystem, and if they have a good experience, it will be easier to get them to sign up for services,” said Jackson.
He said community banks already have a plethora of competitors from fintechs such as Chime, which allows consumers to get paid sooner, or Affirm, which allows customers to pay on time with instant gratification. These are also planned features of the new company, ONE.
Jackson said many banks have moved to work with fintechs on the services side, acting as a clearinghouse and dealing with regulatory compliance for fees.
“Every bank has to look to the future by developing technology and be creative and more aggressive than ever. They have to pay attention to what consumers say they want because retailers are making inroads,” Jackson said.
He said Starbucks has succeeded with its mobile app that lets consumers load money and gift cards onto the app and easily order and pay for purchases from their car while driving. He said Nike combined shopping with workouts on its mobile app, and Sephora was one of the first retailers to use an experiential app to help customers shop for cosmetics and apply them all from their living room sofa.
Jackson said Walmart has the option of integrating a financial service into its mobile app that already allows consumers to order a prescription refill, schedule a vaccination, return merchandise, order a personalized cake or buy a new or used car. He said the 4,300 store locations are also a significant advantage due to the proximity of 90% of the US population.
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