There has been a lot of speculation about what Walmart will do with the new fintech venture it is building with Ribbit Capital. Whether it builds a superapp, or launches a full-fledged neo bank, one thing is certain: We see that offering financial services, whether payments or loans, is becoming a key way for retailers to navigate their digital transformation in light of the hybrid world. It is also a golden opportunity for banks — but only if they change their way of thinking. So why are companies like Walmart becoming financial service providers, and what does it mean for the established players?
Meeting a Need for the Underserved
Embedded financial services offered by non-banks, including retailers, are a key way to reach people who have been underserved by banks, and often go hand-in-hand with rewards and loyalty programs. Walmart is clearly looking to meet more of its customers’ financial needs through this fintech project. It already offers GoBank: full-fledged online checking accounts and debit cards, with options suitable to those with lower incomes, including the ability to use funds from directly-deposited paychecks two days before payday and to make free cash deposits into accounts at stores.
Uber offers its drivers, often gig workers, a similar account. A few other brands, including the Midwest-based Hy-Vee grocery chain, have also recently launched checking accounts appealing to the financial needs of their customer base. More commonly, many retailers offer branded debit cards, which offer more generous or more specific rewards programs than banks’ regular debit cards. This is just the beginning of retailers offering financial services in order to better serve their customers’ needs and integrate their rewards programs.
Creating Platforms Creates Better Business
Adding financial services turns retailers into full-fledged platforms, one-stop shops for needs far beyond shopping. Combined shopping and financial apps are a way for retailers and banks to tie together the digital and physical. For retailers, this includes offering mobile in-store payment apps and quicker ways to get loans or earn rewards while shopping online or in person. Walmart will likely add services from other companies as part of its expanded financial offerings, and sees this as a way to build and retain a customer base.
Platforms offer users a seamless experience. For example, in addition to its GoBank accounts, Walmart offers Walmart Pay, a contactless mobile payment app, but it requires users to upload a separate debit or credit card. And it has online financing options for paying for purchases in installments, but again customers need to sign up for these separately from other services. Combining these services and more into a super-app or single platform will make them easier to use, and likely result in more use overall. Platforms that bring users and retailers closer together and meet needs other than shopping will increase the enterprise’s value as a company.
Banks Need to Realize That This Is an Opportunity
Banks need to understand that financial services should be digitally present and accessible — even embedded — when consumers are doing other tasks, like shopping, ordering food, or dining out. In Publicis Sapient’s recent Digital Life Index, consumers’ number-one demand for improved services from their bank was cash-back partnerships at retailers. Becoming part of retail-based platforms is a way for banks to be exactly where customers need financial services, and at the right time, whether online or in-person. For banks, this means updating to open digital infrastructure. Doing so would allow them to integrate with retail brands and platforms, which almost never have their own banking license, but rely on banking-as-a-service from financial institutions in order to process transactions and offer services like loans and mortgages.
The leading banks of the future will be those who open their APIs (the technology needed to connect for processing payments and other services) and sell this service to retailers. The global embedded finance market is expected to triple in value and be worth $138 billion by 2026, according to Juniper Research. But, with few exceptions, most traditional banks have not yet done so, leaving much of this growing business to more forward-thinking startups and neobanks like Green Dot Bank (which is behind Walmart and Uber’s in-house checking accounts and the debit cards offered by hundreds of other brands).
But Green Dot’s name doesn’t usually appear on the cards or in other branding. In order to succeed, banks, which have long relied on trust in their brand names, will also need to take on the role of an invisible fabric behind retailers’ payment and financial services. There is no question this is a major shift, but banks that continue to resist it, or insist their name must be on the product, will only fall further behind.
By working together on fintech, rather than seeing each other as competitors, banks and retailers can create the platforms users want, as well as ensure their own successful digital transformations.