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What If Walmart Was Your Bank?Bloomberg businessweek What If Walmart Was Your Bank?By: Surane, Jenny, Natarajan, Sridhar, Boyle, Matthew, Bloomberg Businessweek, 00077135, 3/8/2021, Issue 4691Walmart Inc. just took one step closer to becoming a competitive threat to big banks. The world's largest retailer has lured a pair of senior bankers from Goldman Sachs Group Inc. to run a financial technology venture. The move alarmed Wall Street, which has been begging regulators to halt recent efforts by retailers and startups to begin offering core banking products to millions of consumers. "These are substantive hires that should serve as an unambiguous signal of Walmart's seriousness regarding its fintech foray," says Isaac Boltansky, an analyst at Compass Point Research & Trading. "The regulatory moat that has shielded traditional commercial banks is steadily evaporating, and the competitive risks are profound." To lead its effort, Walmart plucked Omer Ismail, a veteran of Goldman Sachs who was a key architect of the bank's consumer efforts in recent years. Ismail will bring along David Stark, who engineered Goldman's partnership with Apple to offer a credit card and oversaw tie-ups with JetBlue Airways and Amazon.com. Ismail's hiring could be a precursor to Walmart filing an application to operate a bank of its own. The Federal Deposit Insurance Corp. late last year formalized rules to allow nonfinancial businesses to set up so-called industrial loan companies. Traditional banks have complained these charters allow companies to enter banking while escaping the capital and other liquidity demands they're forced to follow. Bank trade groups, along with the Center for Responsible Lending, a consumer group, said in a December statement the new rules could undercut "the long-established separation of banking and commerce." Walmart isn't currently planning to apply for bank status, according to a spokesperson. Even so, Chief Executive Officer Doug McMillon has begun to hint at broader ambitions, telling analysts just weeks ago that customers have been asking Walmart to offer affordable financial products, and that he wants to find ways to "monetize" the retailer's vast amount of data. With more than 150 million customers and 5,300 stores across the U.S.—many of which are open 24/7—Walmart would instantly have a consumer base and network of branches that would rival those of Bank of America, JPMorgan Chase, and Wells Fargo. The research company M Science estimates the average person goes to Walmart's stores or website about 30 times a year, almost double the number of visits received by rival Target Corp. "Anything that drives a deeper relationship with their core business, which is selling stuff to consumers, is their No. 1 goal," says John Tomlinson, an analyst at M Science. If Walmart does eventually move to start a bank, it won't be its first attempt. In 2005 the retailer applied to be an industrial bank in Utah. The application soon drew the attention of critics of its broader business practices, such as its treatment of workers and the amount of goods it imported from China. Walmart's corporate reputation at the time was under fire amid allegations of gender discrimination and for revelations that a significant number of its associates and their children were either on Medicaid or uninsured. Back then the company said it wasn't seeking to open bank branches. Rather, it was hoping to use the charter to process credit and debit card transactions internally, a move that would have saved it about $30 million a year at the time. After two years and several delays, Walmart withdrew its application to get out of the spotlight. Despite the setback, it's continued to push into financial services: Its MoneyCenter locations allow consumers to cash checks, receive tax preparation services, and send money overseas. The company also offers credit and prepaid debit cards through partnerships with banks. Walmart has so far been tight-lipped about its plans for the new financial technology company, which it formed with the venture capital firm Ribbit Capital. Ribbit already has its hands in many of the world's most successful fintech startups, such as Credit Karma, which allows consumers to check their credit scores and compare financial products, and Affirm, the installment lender that already provides financing to Walmart customers online. "The big question is, What is their objective?" says Bert Ely, a banking consultant in Alexandria, Va. Whatever the retailer's intentions, the banking industry is on high alert: "The minute you start talking about Walmart and banking, the alarm bells go off." THE BOTTOM LINE A decision by the FDIC last year could make it easier for retailers to get into the banking business, but Walmart faced bad publicity the last time it tried. |
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