The recent announcement that Walmart has hired away two executives from Goldman Sachs to run its nascent fintech division was the clearest sign yet that the retail giant intends to compete in the consumer financial sector, especially with players in the middle market.
It’s not the first time that Walmart has made a foray into consumer financial services.
David Stark and Omer Ismail, both former partners at Goldman Sachs, will build what is expected to be a major presence in consumer financial services for Walmart. They are credited for being instrumental in Goldman’s push toward the middle market through its digital bank, Marcus.
It’s not the first time that Walmart has made a foray into consumer banking. In 2006, Walmart applied for a bank license using the industrial loan corporation (ILC) route. Back then, the company faced stiff opposition from bankers, lawmakers and industry watchdog groups.
The Federal Deposit Insurance Corp. even instituted a moratorium on ILC charters, and eventually Walmart abandoned its modest plans of reducing its back-office payment handling costs.
But for Walmart, it’s not about winning a battle; it’s about winning the war. And in 2021, it is about winning the digital war with the help of embedded finance.
In January, Walmart announced its fintech startup with Ribbit Capital, a fintech-focused venture capital firm. Through this partnership, Walmart plans to build affordable digital financial products for its more than 230 million customers who visit its 10,800 locations. In its announcement, the company said it plans to “build a management team of experienced fintech leaders.”
A brief history of Marcus
That’s where Stark and Ismail come in. Goldman has been slowly moving into consumer finance and launched its Marcus by Goldman platform in 2016, highlighting Goldman’s continued interest in serving the average consumer.
Initially, the platform—which has also expanded to the U.K.—provided personal loans and savings accounts. It recently began offering investment capabilities, and it plans to eventually offer checking accounts to be a one-stop shop for banking.
Both Stark and Ismail have been central to building out well-known fintech partnerships. Now that they will be at the helm of Walmart’s fintech venture, and with Ribbit Capital’s expertise honed from backing fintechs such as Credit Karma, Coinbase, Robinhood and Affirm, we expect a significant impact on Walmart’s customers as traditional companies continue to partner with fintechs.
Leveraging Stark’s and Ismail’s expertise along with Ribbit’s institutional knowledge could be the start of a super app that handles all of Walmart’s consumer finance needs. For example, access to Walmart’s customer data can provide insights to offer customers financial literacy tools, credit score management and installment payment options (buy now, pay later). Next, we could see products for savings and investments, or perhaps an eventual pivot into digital assets.
As a trusted brand to millions of customers, Walmart provides financial products like digital payment options (Walmart Pay) and even marketplace lending through a previous partnership with Goldman Sachs. If a Walmart app comes along that integrates other capabilities via APIs, and if those capabilities show up at the time of need, why would anyone choose to bank elsewhere?
Broader implications
Embedded finance has paved the way for many companies to add financial service products like loans, insurance and savings to their service offerings. These products are added through APIs and allow the companies to manage the relationship with the customer and offer products at the time of need in a seamless process.
Moreover, embedded finance allows companies to curate the customer journey by mixing and matching different financial service offerings to provide tailored experiences.
Now, Walmart, with its pricing power and consumer reach, is poised to become a major force in this still-evolving industry. Walmart was not allowed to proceed with its banking charter back in 2006 and now it certainly doesn’t need it to build a finance super app.
