To borrow from Yogi Berra, the announcement that Walmart is going to form a new fintech with Ribbit Capital is “déjà vu all over again.” The retail giant has been looking for ways into financial services for decades. This time, however, the company is looking for a home run.
What’s newest about the Walmart-Ribbit deal is the type of partner the retailing mammoth has selected and the suggestion in the firms’ announcement that what they develop could eventually be both broad and deep. The retailer’s combined physical and ecommerce customer and employee bases represent a huge potential opportunity.
At a December 2020 investor meeting C. Douglas McMillon, Walmart, Inc. President, CEO and Director, telegraphed something was coming in this space when a Morgan Stanley analyst asked him about the future of retailing profitability. He answered:
“The business model of Walmart is changing. We drive the top line differently and we drive the bottom line differently. We are stating to see the company make money in advertising income. We’re building a fulfillment services business. Financial services are an opportunity for us. Health and wellness is an opportunity for us.”
At present, according to Walmart’s 2020 annual report, revenue from fuel and financial services and related products, including money orders, prepaid cards, wire transfers, check cashing and bill payment totals less than 1% of annual net sales. While that seems miniscule, remember that we’re talking about the largest retailer in America —1% represents $34 million.
Walmart would like this to be much more. Indeed, while the company says it is revamping its business model, Walmart has been trying to make further inroads into financial services for many years in ways ranging from partnerships to in-store branch leases for traditional players to attempts at various points to pick up a banking charter.
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Walmart and Financial Services in the Present
Walmart already has multiple joint efforts at work in aspects of consumer finance, some of long standing by now.
“When we combine our deep knowledge of technology-driven financial businesses and our ability to move with speed with Walmart’s mission and reach, we can create and deliver financial offerings that are second to none.”
— Meyer Malka, Ribbit Capital
Take the Bluebird family of products: One is the reloadable debit card offered with American Express. Another is the Bluebird bank account offered with MetaBank. Other providers take part in the Bluebird programs as well.
Walmart gift cards, both physical and virtual, are offered in conjunction with The Bancorp Bank. With Capital One it offers a rewards card as well as a straightforward store card. There is also the Walmart Pay mobile wallet. Walmart also offers buy now pay later financing through Affirm, which Cross River Bank provides the credit for.
The deal with Ribbit may reflect Walmart’s desire to get further into the actual guts of financial services, rather than being solely a distribution partner. At present, the fintech startup will be majority-owned by Walmart and some activities will be pursued via partnerships with other fintechs. Leadership will include both Walmart execs as well as Meyer Malka, Managing Partner at Ribbit Capital. Malka’s firm is a fintech heavyweight, having helped develop Robinhood, the no-fee mobile investment platform, Credit Karma and Affirm.
“Walmart has a relationship with millions of customers and associates built on trust, security and integrity,” says Malka. “When we combine our deep knowledge of technology-driven financial businesses and our ability to move with speed with Walmart’s mission and reach, we can create and deliver financial offerings that are second to none.”
The announcement indicates that many of the financial services Walmart offers in conjunction with other companies will continue to be offered. Not mentioned specifically is Walmart’s relationship with Green Dot’s Green Dot Bank, which offers basic banking accounts to Walmart customers through its banking-as-a-service operation via the Walmart Money Card. The case has been made that a key advantage of this relationship is that such affiliated cards don’t charge Walmart interchange fees, which is a big savings for a retailer. A few years ago Green Dot described Walmart as its largest retail distributor.
Only a few days before the Walmart-Ribbit announcement, Green Dot made its own major announcement, the launch of GO2bank, a new mobile bank of its own targeted specifically to lower-income Americans attempting to build up their finances. Among the extras advertised are the ability to be paid early and availability of up to $200 of overdraft protection.(Green Dot is also among the handful of financial institutions working with Google on its Google Plex accounts, in development.)
The intersection of a revved-up Walmart financial services effort with its retail operation suggests huge potential. Unlike an Amazon, which remains chiefly an ecommerce brand with some physical locations and its Whole Foods subsidiary, Walmart has thousands of stores across the country, and internationally, and has been building its ecommerce operation for some time.
Walmart has had hits and misses in the ecommerce space, but potentially almost every venue in which Walmart sells things represents a growth avenue for financial services.
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Walmart’s Long History of Trying to Get Into Banking
Walmart and financial services represents a bit of a paradox. The Walton family, descendants and relatives of founder Sam Walton, is the richest family in America in 2020, according to Forbes. The family owns a big chunk of the retailer, but also owns the majority of Arvest Bank, a $25 billion banking company with branches in four states. The bank and the retailer are, under federal law, owned and operated completely independently of each other.
Among the many backdoors to bank status Walmart tried was the industrial loan company route and a loophole creature, since closed, called a “unitary thrift company.” It eventually withdrew its ILC application in the face of heavy banking industry lobbying.
Over the years Walmart has aggressively recruited banking institutions to provide financial services in its stores. Texas-based Woodforest National Bank is the leader in this strategy with hundreds of Walmart store locations. The bank continued opening new Walmart branches into the fall of 2020 even as many in the industry were debating the post-COVID future of branches at all. Even in Walmart locations where no bank leases a branch, typically financial services such as money transfer are offered at a counter.
Overall, Walmart’s involvement in financial services has done better than some retail rivals. Several decades ago when Sears was still a robust retailer it attempted to launch a network of in-store financial centers offering banking via its own Allstate Savings and Loan, stock brokerage via Dean Witter, Allstate Insurance and Coldwell Banker residential real estate services. The move gave rise to jokes about “buying your stocks where you buy your socks.” In time these were shuttered, and the only survivor of the effort, the launch of Discover Card, was spun off.