The Supply Side: Walmart looks to fintech as new profit center

Walmart has made no secret of expanding financial services products to its shopper base. The retail giant has joined forces with several financial technology (fintech) startups with plans to create a “neobank” that will enable customers to manage money with lower fees.

Walmart announced in January 2020 a strategic partnership with fintech investment firm Ribbit Capital to develop and offer affordable financial solutions. Ribbit’s investment portfolio includes Credit Karma, Affirm and Robinhood. Walmart hired two Goldman Sachs execs to head up the new fintech venture named Hazel.

Last month, Walmart acquired the financial startup Even Responsible and One, a digital banking alternative founded in 2019 by Brian Hamilton.

Pending regulatory approval, all the startups will operate under the name ONE, with Omer Ismail as CEO. The combined entity will have a workforce exceeding 200 people and have more than $250 million in cash on the balance sheet to advance growth, according to the Walmart release on Jan. 26.

“Consumers everywhere are being left behind by the world of financial services,” Ismail said. “Our vision is clear: build on Even and One’s success to offer a product that offers consumers the best way to spend, the best way to access their wages and helps millions save and grow their money.”

Walmart U.S. CEO John Furner told analysts during the Feb. 18 earnings call that the fintech moves help consumers get paid early, spend, save, borrow and grow their money as ONE seeks to develop a super app once the deals close in the first half of this year. The retailer said that the ONE app would be integrated inside Walmart’s physical and digital channels, offering options to its 1.6 million U.S. employees and 100 million-plus weekly shoppers. As a standalone company and app, Walmart said that one would be available directly to U.S. consumers and through partnerships with other leading employers and merchants.

ONE will partner with Coastal Community Bank to offer saving, spending and borrowing services in one digital account.

Walmart’s investments in fintech also stem from knowing millions of Americans can’t access credit. Almost 25% of U.S. adults are unbanked or underbanked, and roughly 80% of fintech users rely on multiple accounts to manage their finances.

“Walmart is constantly looking for new ways to deliver on our core mission of helping our customers save money and live better,” Furner said. “Customers have made it clear that they want more from us in the financial services arena. Creating a simple, personalized app that allows users to manage their money in one place is the natural next step toward fulfilling that. We couldn’t be more excited about what this will mean for Walmart customers, associates and consumers everywhere as we try to help empower millions to improve their financial lives.”

Ben Jackson, chief operating officer at 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 with access to money, and it’s never been easier as consumers have a bank in their pocket with their smartphone,” Jackson said.

Jackson said it’s an opportunity for Walmart to become top of mind with their customers regarding financial services, and it’s another way to draw them into the retail giant’s ecosystem. He said the model Walmart is using with partnerships is strategic. It makes it possible to outsource the compliance to bank partners to understand that the retailer will do certain due diligence.

Jackson said it would be interesting to see how the new financial service rolls out, suggesting it may take time for consumers to jump in with both feet.

“It is very hard to get people to change banks. But if Walmart can appeal to customers to try one service or tiptoe into the larger ecosystem, and if they have a good experience, it will be easier to have them sign on for services,” Jackson said.

He said community banks already have a plethora of competition from fintechs such as Chime, which allows consumers to get paid earlier, or Affirm, which allows customers to pay on time with instant gratification. These are also planned features of the new venture, ONE.

Jackson said many banks have decided to work with fintechs on the service side, acting as the clearinghouse and taking care of the regulatory compliance for fees.

“Every bank needs to be looking at the future with developing technology and be creative and more aggressive than ever before. They must pay attention to what consumers are saying they want because retailers are making inroads,” Jackson said.

He said Starbucks has been successful with its mobile app that allows consumers to load money and gift cards onto the app and easily order and pay for their purchases from their car while in the drive-thru. He said Nike has combined shopping with exercise 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 couch.

Jackson said Walmart has an opportunity to weave financial service into its mobile app that already allows consumers to order a prescription refill, schedule a vaccination, return merchandise, order a custom cake or shop for a new or used car. He said the 4,300 store locations are also a significant advantage because of the proximity to 90% of the U.S. population.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.