I’ve noticed that Wal*Mart has recently been hiring bankers. Goldman Sachs’ bankers to be exact. Goldman Sachs Marcus’s bankers to be more specific.
Omer Ismail, the head of Goldman’s consumer bank [Marcus], is making a surprise exit to the fintech, according to people with knowledge of the matter. The world’s largest retailer made a splash last month after disclosing plans to offer financial services with an independent venture in a tie-up with investment firm Ribbit Capital without offering much detail. David Stark, one of his top lieutenants at Goldman, will join him in the new venture.
In January, the big retailer said it was teaming up with Ribbit Capital, a venture firm that has funded Robinhood, Affirm, and Credit Karma, among others, on a new fintech. Details were scarce. Walmart, which already offers credit and prepaid debit cards, check cashing, money transfers, and installment loans, said it was responding to customer demand.
The Financial Times is betting that Wal*Mart will get into banking big time:
Walmart is betting that the regulatory environment has changed. The company has tried to get into banking before, by applying for an industrial loan company charter, one of the only exceptions to the longstanding separation of banking and commerce under US law … but in 2007, amid a frenzy of lobbying from banks, US regulators made it clear that the world’s largest retailer would not be allowed to slip through this loophole, and Walmart withdrew its application. Today, though, politicians prefer to paint big tech companies as the key threat to competition. And the banking world has changed, too. There is an array of fintechs shaking things up, so the banks may now see Walmart as one threat among many. “Walmart was the boogie man — now it’s Amazon,” says Neil Saunders of research firm GlobalData Retail … what is Walmart’s competitive advantage in financial services? Its huge customer base, many of whom are rural and on modest incomes. Many of them will be unbanked or underbanked. These people don’t need particularly whizzy tech. They need deposit services and credit. So, what makes sense is for Walmart to offer core banking services, even if they do it through their web app rather than with bank branches within box stores.
Whilst Ron Shevlin of Cornerstone argues a different view:
Walmart’s fintech aspiration is a lot bigger than just creating a digital bank—it’s creating a true digital ecosystem in the form of a super app … Walmart’s super app opportunity is a lot bigger than just integrating and digitizing its financial services business or deploying its Connect concept, which will be a self-service advertising platform for Walmart partners to manage digital ad campaigns. The super app opportunity includes integrating Walmart’s: 1) Shopify marketplace; 2) Connect ad platform; 3) health centers; 4) existing investments in eCommerce, logistics, supply chain, and inventory management; and 5) other product and services not currently affiliated with Walmart.
The funny thing is that Wal*Mart have been sniffing around this space for eons. Twenty-five years ago, I wrote this:
A trend that is starting to emerge is that the retailer is having a greater influence over the in-store branch design. In some cases – a recent example is Wal*Mart – the retail operation are actually looking to procure the fixtures and fittings for the branch, and design the branch layout themselves. The bank is then purely allowed to brand and resource the in-store branch centre.
Then Wal*Mart partnered with Chase and MasterCard to offer a direct card and credit service to store customers in 1996.
Chase Wal-Mart co-branded card, Retail Banker International Page 359, 3rd November 1996
Wa;*Mart Stores and Chase Manhattan Corporation launched a co-branded credit card with MasterCard International in October. Along with MasterCard, Chase will be tapping into the 60 million shoppers who visit Wal-Mart each week. The bank is focusing on existing Wal-Mart custom, particularly the heavy shoppers in the south and midwest regions where the retail giant has an established presence. “We’ve been very pleased with the initial response,” said Chase managing director of co-branding Gene Ryzewicz.
The new card, aimed at “the working family”, will feature no annual fee and a fixed APR of 14.48%. Ryzewicz cites the APR, which is about 3 percentage points lower than the average APR for other cards, as a key attraction of the Wal-Mart MasterCard. In addition, the card offers 9.9% APR on balance transfers for the life of the loan …
Analysts are speculating that the co-branding agreement may have shielded MasterCard from the lawsuit which has been filed by Wal- Mart against Visa USA over a long-standing objection that the association forces retailers to accept debit cards. MasterCard is not named in the suit, although its policies are similar .
At that time, 1996, everyone expected Wal*Mart to become a bank. Strangely enough, they never did become one because, every time they tried to get a banking license, they were rebuffed. Regulators fear that a powerful retailer entering banking would become too powerful. This is another reason why Amazon won’t become a bank, or Google or Facebook for that matter. Regulators in Europe and America would block such a move, although it is noteworthy that Wal*Mart did get a banking license in Mexico in 2007 and that the Chinese view of such great power is not the same.
Chinese regulators allowed the merger of social, commercial and financial services online to become superapps. It is only now that the Chinese government is maybe changing its mind about how these superapps behave, vis-à-vis the Ant Group IPO and the forced seclusion of Jack Ma.
Meantime, back in Europe and America, we have seen many retail giants dilly-dallying with banking for decades. Most have been opening bank branches in their stores, but nearly always in a tie-up with a bank (see Marks & Spencer and HSBC). That side of things – white labelling bank services – is as old as the hills now, but opening their own bank. 100% owned and operated by the retailer?
I’ve long forecast that any company with frequent customer contact – specifically retailers and telcos – will open banks, and many have. Note Tesco Bank, Sainsbury Bank, Orange Bank and more. Nevertheless, in the case of Tesco and Sainsbury, after a quarter of a century I would hardly call them challengers. They’re more like ticks on the backside of the big four banks’ bums. This is because they’re not very good at it. Similar to when old banks launch digital banks, it’s more of a plaything and rarely becomes a main thing.
Now Wal*Mart are back at the banking table, launching a consumer-facing FinTech with leads from Marcus. It won’t be a bank. It will be a savings and investment platform, backed by Wal*Mart, and giving their customers simple access to financial services they currently find difficult to access. It will compete with Robinhood, Betterment and may Square and PayPal imho, and will be 100% Wal*Mart centric.
The good news for the guys leaving Goldmans is that they will be paid a pretty penny for doing something that is simple when it’s not a bank but just a plaything. I summarised a fascinating article on this blog four years ago from Business Week about Wal*Mart’s acquisition of a 15-month old company called Jet for $3.3 billion, which everyone thought was over-priced. They did it to get the skills of an Amazon style firm and its founder Marc Lore, who was ex-Amazon. They paid Marc Lore $244 million in 2016, 10 times more than his boss, Doug McMillon, Wal-Mart’s CEO.
At the time, I noted the last part of the story, which hit a home run:
Over lunch, [Lore] shares a story about his teenage daughter, who’s started an online sticker-selling business whose proceeds go to philanthropies fighting celiac disease, an autoimmune disorder. When his daughter recently told him she was making money, Lore says, he was shocked. “How are you profitable?” he asked her. “Well, Dad, it’s easy,” she replied. “You just make sure your revenues are higher than your expenses.” “Oh,” Lore recalls saying. “I never really thought about it that way.”
In many ways, McMillon’s bet on Jet.com and Lore was a success. Walmart.com is now the No. 2 online shopping site after Amazon in the US, more than doubling its market share of online sales to 5.8 percent during Lore’s tenure, according to the research firm eMarketer. The retailer’s stock price has increased more than 80 percent since the acquisition — which is greater than the growth of the S&P 500 during the same period. Walmart is now valued at more than $400 billion and has shed much of its reputation as a digital dinosaur in the business world.
Maybe the same will prove true of their hiring of the Marcus guys, and we will finally see a bank called Wal*Mart … except it won’t be called that. It will be called something more funky, like Asda.