Walmart’s involvement in a fintech merger announced this week reignites once again the long-simmering question of whether the retailing giant is a threat to traditional banks.
The Bentonville, Arkansas, company said a year ago it was working with the Silicon Valley venture capital firm Ribbit Capital to create a fintech startup called Hazel. On Wednesday, Walmart
The combined company, which would take the name One, may provide Walmart a way to finally become a financial services provider, a goal it has pursued for decades. The new One would start out as a mashup of the two existing companies’ technologies and teams, supported by a large pool of cash from Walmart and Ribbit and exposure to millions of Walmart customers and employees.
But the potential pitfalls on the business and policy fronts are real. The challenger bank market is already crowded, and any perception that Walmart is again trying to cross the line between financial services and commerce could attract swift opposition from community bankers and some lawmakers.
“Because of its history, Walmart has to be extremely careful about appearing to encroach on the territory of the banking system,” said Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University. “It doesn't want to create a political issue here.”
Political backgrounder
Walmart for two decades has sought to offer financial services, often drawing flak from banks, especially small ones, worried about whether they could compete with such a powerhouse. Many policymakers also raised concerns about the economic concentration of power that could result from letting big commercial companies like Walmart control credit decisions.
In 1999, it tried to buy an Oklahoma thrift institution. The Gramm-Leach-Bliley Act enacted later that year forbade the sale of an existing thrift holding company to a nonfinancial company like Walmart.
In 2001, it applied for permission to form a joint venture with a thrift owned by TD Bank Group. The Office of Thrift Supervision denied the application after learning that Walmart employees would be operating the TD Bank branches in Walmart stores.
In 2002 and 2003 respectively, Walmart applied for industrial loan company charters in California and Colorado, but the states passed laws preventing nonfinancial businesses from owning ILCs.
In 2005, it applied for an ILC charter with Utah’s bank regulator and the Federal Deposit Insurance Corp. The FDIC received more than 1,500 letters criticizing the plan. Walmart withdrew its application in 2007.
In June 2021, Walmart and Green Dot began offering the prepaid Walmart MoneyCard issued by Green Dot Bank as a demand deposit account, giving cardholders access to Green Dot Bank’s digital banking app and accounts with overdraft protection, direct deposit, and interest on savings. At that time, there were more than a million MoneyCard account holders.
“Walmart has long wanted to leverage its size to build financial economies of scale for its own operations and to create loyalty and benefit for its enormous base of consumers and employees,” said Brad Leimer, co-founder of Unconventional Ventures.
The new fintech’s strengths
An indisputable advantage One would have is Walmart’s customer reach. In 2021, approximately 240 million people a week visited Walmart stores throughout the world, according to Statista. If the challenger bank can reach a fraction of these, it will quickly pull ahead of existing competitors.
“Clearly, One is focused on Walmart’s 1.6 million employees and millions of customers who visit per day,” Baker said. “Access to the Walmart customer base has to be a critical piece of this. Otherwise it doesn't make any sense,” said Baker, who is also managing principal of Broadmoor Consulting.
The merged company would start out with $250 million from Walmart and Ribbit Capital.
“The largest portion of capital will go into hiring, developing and retaining great talent,” said David Baga, Even's CEO, who will remain with the merged company in an undisclosed role.
Despite Walmart’s investment, the companies say the fintech would be independent of Walmart.
This is “to allow speedy decision-making outside of Walmart’s corporate structure, and probably allows investors in Even and One to keep some upside by rolling over part of their investment,” Baker said.
The merged company’s app will have all the features that Even and One now provide.
Even provides earned-wage access, financial education and financial management for employees of Walmart and other large employers including JPMorgan Chase. It connects into an employer's systems, letting employees see how much they have earned, access those earnings on demand before payday and deploy them as savings for emergency needs.
“Over the past two decades, we've seen instant experiences become standard in almost everything we do, whether it is streaming videos or music, or being able to order food or get a Lyft,” said Baga, who was chief business officer at the ride company for four years. “And yet we have an antiquated pay cycle that pays people every two weeks.”
Consumers’ living needs don’t occur on a regimented two-week cycle, Baga pointed out.
“People need gas for their cars to get to work,” Baga said. “They need to put food on the table. They need to go buy diapers for their children. And sometimes they just can't wait for that [paycheck] date. We’re on a pathway to streaming wages as they're earned to employees.”
One offers mobile banking and a debit card with a partner bank, the $2.6 billion-asset Coastal Financial in Everett, Washington. One pays 3% interest on automated contributions from a user’s paycheck and from rounded-up card transactions to One’s “auto save” pocket.
“We're incentivizing healthy financial behaviors,” said Brian Hamilton, founder and CEO of One, who also will join the post-merger One in an undisclosed role. “It's the set-it-and-forget-it behavior of automatically contributing to savings as you spend.”
This combination of products is strong and well-suited to Walmart, Baker said.
“Walmart has all the brand power it needs,” Baker said. “It has all the customers it needs. And what it's looking for is really good technology solutions to help it build some kind of a super app for its customers where they can do not just their shopping, but they can handle financial matters and other things within a Walmart ecosystem. This is the early stages of the build-out of that.”
The need to stand out
A major obstacle that the merged company would face, and that the existing challenger bank One already deals with, is the neobank market is crowded.
“There are competitors like Chime that have equivalent or better models and are ahead of them,” Baker said.
Hamilton said the One app already differentiates itself from other challenger banks with its ability to let users organize their money through pockets and to budget and to provide unsecured credit.
With the payroll integration from Even, the combined company might be able to provide new products like point-of-sale financing based on paycheck information, Hamilton said.
“There's certainly a very long list of neobanks, and there is a growing list of earned-wage-access providers,” Baga acknowledged. But no existing competitor has combined digital banking with an app for employees that includes earned-wage access, he said.
And the connection to Walmart and its stores would also give One “a level of reach that is unmatched by any neobank that we'd be competing with,” Baga said.
Banks and other existing financial players should take notice of what Walmart is doing, Leimer said.
“The normal economic needs of American consumers are still not being met, we still have a financial system that is geared toward the top 10% of financially well-off households and those that generate the most profit,” he said.
Fintech and nontraditional players have been demonstrating new ways of serving people with lower incomes, Leimer said.
“The banking industry can certainly do more.”
