Walmart (NYSE: WMT) recently announced plans to open up its very own fintech startup in partnership with Ribbit Capital (NYSE: LEAP). Fintech or financial technology leverages the power of applications to give consumers an ability to borrow and save, without the regulatory scrutiny that's often applied to traditional banks. Tech giants and e-retailers have been endeavoring to get into the consumer financing business for some time. But such efforts are often strangled by the amount of red tape involved.
However, Fintech platforms aren't beholden to the Federal Reserve or other bank regulators. So Walmart's new startup could offer a blueprint for the future of consumer financing, a future where consumers borrow and spend their money all in one place.
However, Walmart's startup won't escape the myriad state and federal licensing requirements, which currently apply to fintech. Yet, Walmart's partnership with Ribbit Capital should help them navigate these obstacles. Ribbit has already established two fintechs, Robinhood and Credit Karma, as household names. Under the new startup, Ribbit brings its expertise while Walmart brings its unique insights into its customers' spending patterns.
Customers, which are increasingly cash strapped, as Walmart's Chief Customer Officer Jenny Whiteside recently told CNBC. This is important because while Walmart hasn't specified the new startup's services, it has noted that they'll be affordable. It seems that Walmart's move into the fintech space is just another way it's repositioning itself to become an affordable one-stop-shop, bank, and healthcare clinic, in one; a repositioning that's been unfolding over many decades.
While during the 80's and 90's Walmart's focus seems to have been offering new formats for shopping and opening itself up to new markets, but Walmart's focus in the 21st century appears to be far more nuanced.
Most notably, Walmart managed to reinvent itself as a major online retailer only in the last year. As brick and mortar retailers struggled during the throes of the coronavirus pandemic, Walmart managed to see a 79% uptick in online sales year over year, according to CNBC. And today, Walmart is viewed as one of Amazon's top competitors.
But it's clear that Walmart has even bigger plans than just competing with Amazon (NASDAQ: AMZN). The retailer has plans to open discount health clinics in many of its stores, clinics which will offer co-pays as low as $30 for an annual checkup. Walmart even plans to get into the health insurance business.
Not to mention the suite of financial services Walmart already offers. Walmart Money Centers offer services like check cashing, money transfers, and tax prep. They even extend credit to customers, usually in the form of prepaid cards. These services, combined with the new startup's savings features, would essentially make Walmart a bank, a bank without a charter.
That doesn't mean Walmart hasn't pursued a banking charter in the past. In 2005 the retailer tried but failed to secure an ILC or industrial lending charter. Traditional banks successfully argued that they couldn't compete with Walmart, given its tens of millions of customers and the pared-back regulatory standards of an ILC.
But times and administrations have changed since then. Recently, the FDIC loosened industrial lenders' liquidity requirements, making it easier for firms and retailers to secure an ILC. These pared-back regulations enabled Square (NYSE: SQ), a mobile payment platform, to secure an ILC. Meanwhile, Japanese e-retailer Rakuten (OTC: RKUNY) is currently on the docket to get a charter. Rakuten's success could open the door for Walmart, Facebook (NYSE: FB), Google (NASDAQ: GOOGL), and a whole host of other firms to get their own ILC's.
However, the days of easy regulations will likely come to a close under the incoming Biden administration. Yet, by leveraging financial technology, Walmart's new startup won't be weighed down by many regulatory burdens.
Walmart's new startup could enable consumers to buy, borrow, and save all in the same place. If Walmart succeeds, then their new venture could open the door to a new age in consumer financing. An age in which the lines between bank and retailer will become increasingly blurred for better or worse.