Engineering a payment strategy is not for the meek, particularly when you are a top retailer. Retailers need to consider two necessities: maximize sales and ensure that customers have the best payment options available. The strategy needs to balance the long-term customer relationship–how do you keep the long-term buyer, should the consumer fail to maintain their credit account?
This challenge affected retail pioneers who addressed the market, including Federated Stores, JC Penney, and Sears. Sears built a business on credit relationships, and spawned Discover Card, as it spun off to Dean Witter, and ultimately IPOed into a global payment network, going well beyond the consumer credit card.
As eCommerce begins to gain scale, payment cards and developing payment forms play an essential role. Cash is no longer king, and consumer checking options do not work well on the internet, which is why payment cards represented 75.3% of transactions during 2018. Expect this metric to increase, particularly as eCommerce develops.
The National Retail Federation ranks Walmart as the top retailer globally, with $510.3 billion in total revenue, followed by Amazon, with $232.9 billion in sales. The two retailers vary in age and presence. Founded in 1962, Walmart has 11,361 retail locations; Amazon, launched in 1994, has only 472 locations.
Walmart tried to consolidate its financial services with fleeting success. The firm abandoned plans to build a U.S. bank after facing off with the Federal Deposit Insurance Corporation in 2005. Despite the U.S. obstacle, where Walmart’s president of financial services said: “We don’t plan to do this again. The bank is behind us. We will use our partners to roll out new products,” Walmart opened banks in Canada and Mexico. In the U.S., Walmart made various partner relationships and launched a global money transfer service, called Walmart2Walmart.
Amazon’s retail success and technical sophistication threaten Walmart’s position; Walmart announced plans to get back into the financial services ring with its intention to create a fintech startup, as the WSJ reports.
- The new company will be majority-owned by Walmart, and the board will include Chief Executive of Walmart U.S. John Furner, Executive Vice President and Chief Financial Officer Brett Biggs, and Meyer Malka, managing Ribbit Capital partner.
- Ribbit has backed several well-known fintech startups, including digital brokerage firm Robinhood Markets Inc., buy-now-pay-later lender Affirm Inc. and personal-finance website Credit Karma Inc.
- Shares of Walmart rose 1.3% in after-hours trading. The retailer’s stock is up nearly 27% in the past 12 months.
- Walmart said that it anticipates growth for the new venture may come through partnerships and acquisitions with leading fintech companies. Walmart’s existing financial-services offerings, which it says it will continue to offer, include its credit card, a reloadable debit card, cash transfers, and check cashing.
The move will be interesting to watch. Will Walmart look to take balance sheet risk and get directly into financing, or will they continue their partnerships. Will Walmart look to mimic global retailer Tesco and look at Home Insurance and mortgages, as Tesco Personal Finance did in 1997?
We will have to watch. It might affect Walmart’s advertising tagline of “Always Low Prices” and bring them back to the previous moniker of “Save Money. Live Better.”
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group