The retailer’s fintech partnership — and poaching of Goldman Sachs leaders — signals it’s serious about encroaching on Wall Street’s turf.
For two years before the 2008 financial crisis, Walmart Inc. was embroiled in controversy over a plan to open its own bank, eventually withdrawing amid pressure from regulators and Wall Street lobbies. Some 14 years later, the retail giant is gearing up for an even more serious fight.
Walmart announced in January that it formed a partnership with Ribbit Capital to create a new financial technology startup. At the time, most outside observers didn’t have much sense of what kind of products the new company would aim to create. The venture “plans to add independent industry experts to the board and to build a management team of experienced fintech leaders. It anticipates that growth may come through partnerships and acquisitions with leading fintech companies,” the press release said.
It’s clear that Ismail and Stark are taking the reins of a project that is of high importance to Walmart and CEO Doug McMillon — after all, the retailer wouldn’t have put its U.S. CEO John Furner and CFO Brett Biggs on the board of directors of something it viewed as a low-stakes side project.
Meanwhile, the retail landscape is evolving in ways that should motivate Walmart to come up with new revenue streams. The U.S. is mostly saturated with Walmart brick-and-mortar stores and the retailer’s e-commerce channel still isn’t profitable. The company can take steps within its core business to help with that, including selling more high-margin items online, but it can also give itself a profitability cushion by looking outside the retailing domain, much asAmazon.com Inc. has done with its cloud-computing and advertising divisions. Walmart already moved in this direction with the creation of Walmart Connect, its nascent advertising business.
Walmart already serves many unbanked and underbanked consumers through offerings such as check cashing and money transfers. The financial technology startup could potentially develop products that appeal to consumers who already trust Walmart for these kinds of services. Or perhaps it will go far beyond that, with creations designed for the retailer’s 2.2 million employees, or for a wider base of middle-income consumers. Those bearish on Walmart are dubious that the venture will offer much to the core consumer base: The “reasons these customers do not have bank accounts or credit would likely also mean they will have little use for ‘next generation financial products,’” John Zolidis of Quo Vadis Capital wrote in January.
Even if that’s the case, don’t expect the big U.S. banks to stay complacent. They’re very clearly frustrated with a Federal Deposit Insurance Corp. rule that makes it easier for non-financial corporations to get charters as “industrial loan companies,” which gives them the capability to do some aspects of banking while remaining outside the strict regulatory structure that governs the likes of JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. Walmart isn’t currently planning to apply for ILC status, a spokesperson told Bloomberg News.