What If: Walmart Succeeds as a Neobank?

In the bid to build a financial services ecosystem, and a super app that marries commerce and banking, there’s a 800-pound gorilla in the space that bears watching.

Though Walmart’s previous and ongoing efforts to branch out into banking have not yet borne the fruit it may have wanted, the “what if” question must be asked:

What if Walmart becomes a neobank?

At least for the near term — according to Amias Gerety, partner at QED Investors during a conversation with Karen Webster — “probabilistically you’d rate this pretty low.”

Walmart’s made some inroads in the space, having bought Even Responsible Finance and One Finance.

And over the summer it began offering a 5% yield on savings accounts. But Walmart Pay, according to PYMNTS own data, only captured a midteens percentage point share of mobile wallet spend, lagging far below the likes of Apple and other providers coming out of the pandemic and as recently as the end of last year.

And while consumers would like to have at least some elements of financial services presented neatly within an app’s umbrella — 68% of consumers, in fact — to avoid hopscotching all over one’s mobile device, there’s a long list of providers they’d choose to deliver that experience ahead of Walmart.

Where Walmart Stands Right Now

PayPal leads the pack here, and Walmart has a relatively slim 18% of mindset among consumers to do that, as per the chart.

At first glance, the deck might be stacked against Walmart here. As Gerety noted, having a marquee name in some areas of commerce does not translate into consumer-facing banking success. PayPal, in one example, has shown surging Venmo volumes, but the Venmo digital wallet has not taken off.

“In this country,” Gerety said, “we have an awkward relationship where the principle is, ‘We don’t mix banking and commerce.’” But the advent of advanced technologies and the rise of FinTechs has shown that it is possible to separate risk management, the regulations and compliance from customer acquisition and customer service.

And Walmart, of course, has the scale in place that represents an untapped market, given that 100 million souls walk in and out of its stores every week, it has 4,700 physical branches, and 33% of consumers already use nontraditional financial providers (13% of them, per PYMNTS, use these providers as their primary banks).

A Different Question to Ask

So, perhaps the question shouldn’t be “what if” Walmart becomes a neobank … but “what if” Walmart succeeds as a neobank?

More specifically, Walmart may find its berth as a reseller of banking services — call it a customer center for banking, tied in-store to a continuum of services that include tax prep and health care.

And Walmart, he said, has proven itself to be “ruthless at efficiency” while simultaneously establishing itself as the master of the “cross-subsidy,” luring the shopper who comes in to buy milk with a one-stop-shop ecosystem to do, well, pretty much everything else.

The fact that Walmart touches so many aspects of daily life is captured in Gerety’s son’s observations that Walmart is akin to “Amazon, but in person.”

Where They’re Looking

As to the competitive landscape, as Walmart brings more efforts to bear on banking, it’s not the FinTechs that they’ve got in the crosshairs. A FinTech, after all, usually is staffed with a few dozen employees and counts itself a success if it’s got a million customers. For Walmart, a million customers does not move the needle much for anything.

The most obvious space Walmart plays in when it comes to banking, then, takes aim at community banks — the neighborhood stalwarts that have a few hundred million dollars or a few billion dollars. Walmart might conceivably partner with at least some community banks to gain some momentum in financial services, but no matter the path it takes, it will have to seek a value proposition that lies beyond offering 5% yields on savings accounts.

The customer journey into banking might be smoothed, given that Walmart offers remittance payments to its customers, a service that is widely embraced, and critical, to the unbanked populations that are not served by traditional FIs.

Plus: People like to bank in person, Gerety said — and like face-to-face help with life’s financial journey.

For Walmart, any success in banking will come because, as Gerety said, “They have the assets to do it.”

Past may be prologue.

Walmart’s already got the brand imprimatur of everyday low prices, which helped the company “completely upend” the grocery industry, Gerety said. Now it’s up to the commerce juggernaut to cement trust and a “delightful” experience for its customers examining its banking services and products (especially as the stores are open till late at night while banks close at 5 p.m. most days).

The banks, then, have left a few gaps that Walmart can fill. “My gut says that if this works, it happens more with the unbanked and underbanked populations,” said Gerety, who added, “This would be a significant benefit to society.”