Business Analysts are Skeptical
Walmart will own the majority stake in the new company, and its board will consist of several of Walmart’s top officials, including CFO Brett Biggs and CEO John Furner, according to the official statement.
The retailer also said it plans to bring independent industry experts to the board and may even buy or strike business deals with other fintech companies.
“For years, millions of customers have put their trust in Walmart to not only save them money when they shop with us but help them manage their financial needs,” Furner said for a press release. “And they’ve made it clear they want more from us in the financial services arena.”
Walmart currently has over 4,700 retail business stores across the United States (US) and serves millions of consumers per year. A portion of these customers don’t have relationships with financial advisors, while 6% percent of adults in the US don’t have any kind of bank account, according to the US Federal Reserve (FED).
Furthermore, around 16% of adults are underbanked, which means that they have a bank account but use other financial services. These US citizens are more likely to resort to payday loans and pawnshops, which often include high-interest fees.
Walmart already provides certain financial services such as Walmart MoneyCard, a prepaid debit card to which customers can deposit money and use it to make purchases. Walmart MoneyCard offers some benefits to help improve money management and has no overdraft, monthly fees, or minimum balance requirement.
Walmart customers who have more limited budgets can also choose between other alternative payment plans like layaway and Affirm, a fintech company that lets consumers buy an online product and pay for it in installments.
Ribbit Capital, co-owner of Walmart’s upcoming fintech startup, has invested in fintech companies several times before. The venture capital firm is invested in Affirm, Robinhood, and Credit Karma, a company that offers free credit scores and insights.
John Zolidis, the president of investment firm Quo Vadis Capital, says he doesn’t see a point in Walmart's new business idea from an investing perspective.
“This will never be material to WMT earnings or justify a change in the stock's value. Secondly, while it would be too strong to say we are "concerned" about this initiative, it does feed into our unfavorable view on WMT shares at the current time. Among the reasons we are not keen on WMT shares is our sense that WMT is deviating from its capital allocation discipline and core competency,” Zolidis said.
Shares of the US giant retailer traded up 1.5% following the news.
Walmart and Ribbit Capital, a venture capital firm that backed the Robinhood trading app, are launching a fintech startup that aims to develop unique financial products for its staff and customers.
About the Author
Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.