Retail giant Walmart has recently come forward with its plan to create a fintech subsidiary that will help the company expand into the booming neo-banking sector.

Walmart announced in January 2021 that it had been developing a unique and affordable financial product for its customers and employees. Well aware of the cut-throat competition in the fintech space, Walmart is looking to partner up with reputable firms that could help it develop a formidable fintech platform that can take the market by storm.

So far, the company has announced a strategic partnership with online investment firm Ribbit capital with the aim of developing a new-age platform that can provide innovative and pocket-friendly investment solutions to its customers. Walmart has also reportedly “poached” two senior executives from Goldman Sachs’ fintech wing ‘Marcus’. Both executives, Omar Ismail and David Stark were key in getting Marcus’ deposit figures to a staggering $97 billion in deposits last year.

The board of this new fintech wing is rumored to have influential names such as Walmart’s CFO Brett Brigs and its U.S CEO John Furner. While Walmart told the media that it is open to acquire or partner with other fintech firms, it has refused to offer any specific comment about the same. The company seems to be extremely focused on creating a profitable financial transaction platform that can help it foray into a new market.

Walmart’s New Financial Offering

Walmart currently offers some financial services in the form of a prepaid debit card. The card helps customers make easy purchases and is laced with exciting features like no overdraft, monthly fees, penalties or required minimum balance. At a recent investor-day summit, the company’s CEO Doug McMillon said that the company is looking to use its size and scale to drive revenue in other sectors from opening healthcare clinics to turning customer data into targeted ads. Market experts believe that this is a big move on Walmart’s part and it could essentially change the American fintech market in less than a decade, if executed properly.

“The move struck fear on Wall Street, which has been begging regulators to halt recent efforts by retailers and startups to begin offering core banking products to millions of consumers.”

Walmart is also reportedly looking to strengthen customer loyalty further with a varied range of products and its own subscription service Walmart+. The company is hoping to increase investments in the current financial year to be able to fund this. The project will require the company’s average annual investments to go up to about $14 billion as opposed to the current amount of $10 billion to $11 billion per year. The company’s shares are up by almost 23% as compared to last year, bringing its net value to an astonishing $374 billion. This makes it one of the most valuable companies in the world.

Major retail banking companies like JP Morgan Chase believe that Walmart’s announcement is not exactly worrisome for them. They claim that Walmart’s core consumer base is made up of lower middle class households, which are not the target customers for sophisticated financial services. Apart from this, Walmart has already been providing prepaid debit cards, domestic and international money transfers, bill pay services, tax preparation, instalment financing, and other financial services through its partnerships with Green Dot, NetSpend, American Express, MoneyGram, PayPal, Jackson Hewitt, and other providers.

Our analysis

While the fintech market is incredibly lucrative and has incredible future potential, it has also become a cut-throat market in the U.S, with both veterans and unicorns launching their own online financial services to consumers. Under such conditions, it is going to be extremely tough for Walmart to succeed in this space. A more plausible theory could be that Walmart is trying to develop what would essentially be a ‘super-app’: a one-stop destination for shopping requirements, health centres, a comprehensive ad platform, logistics and supply chain management, inventory management, and financial services etc.

When Walmart reported its Q4 2020 earnings, CEO Doug McMillon described a very different ‘super’ concept at the centre of Walmart’s future: the ‘super app.’ He may not have used those two words, but the Connect concept is the super app notion to a tee.