The Tales of Walmart’s Finance Debut Are Greatly Exaggerated

Upon the news of Walmart poaching talent from Goldman Sachs, the reporting has frenzied with tales that the big bad wolf has come to town and is looking to blow Wall Street’s house down. While it’s true banks don’t like the thought of retailers with large footprints throwing their hats in the ring, it’s a big ring.

There are a few things to consider with Walmart moving into retail finance: Chief among them, and as suspect as it sounds, is buyer psychology. Americans are really weird when it comes to money compared to the rest of the west — and the rest of the globe — and perhaps for good reason. Tech giants have tried to muscle into retail finance and have found themselves struggling to breakthrough. Another odd caveat that Americans have with money is their love affair with checks. Americans are still using them. In fact, just a few years ago the average American wrote 38 checks.

While banks would love it if Americans would just stop using checks and paper money, as it would increase their profits, Americans are resilient and stubborn to pay on their terms. Credit & Debit cards are currently the leading payment options of choice, however, 15% of Americans still use cash and only 6% are using their phones. Meanwhile, countries like China and Sweden are basically completely cashless and cardless.

According to a 2017 Accenture report, Gen Z customers are, “surprisingly more likely than any other age group, including baby boomers to visit a bank branch at least weekly”.

As a member of this demographic, I can anecdotally attest to the validity of that statement pre-COVID.

Here’s where Walmart comes in: While Walmart has a massive physical retail footprint and customer base, one must ask who their customers are, what income brackets do they fall into, what is their creditworthiness, and how big would they be as a depositor base - both on an individual level and as an aggregate?

Banks like JP Morgan have a massive urban clientele, with most of its branch locations residing here, in New York — a place that has a scarce presence of large box stores such as Walmart. Urban markets also mean higher income.

Articles suggesting that Walmart is somehow a threat in urban markets just seem a little far-fetched. We then go back to the psychological factor i.e. Do Americans want to do their banking with Walmart? Walmart is promising affordability, which may bite into the billions that banks make through overdraft fees. However, in banking the customer experience matters. The regulatory moat does serve as a barrier to entry, but it is not the end all be all to banks with a big retail player moving further into financial products. Walmart’s banking ambitions may stay as just that, ambitions.

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