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With embedded finance, Walmart takes aim at financial services


The news in early March that Walmart hired away two executives from Goldman Sachs to run its nascent fintech division was the clearest sign yet that the retailing giant intends to compete in the consumer financial sector, especially in the middle market.

David Stark and Omer Ismail, both former Goldman Sachs partners, will build what is expected to be a major presence in consumer banking 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 company (ILC) route. Back then, Walmart faced stiff opposition from bankers, lawmakers and industry watchdog groups. The Federal Deposit Insurance Corporation even instituted a moratorium on ICL 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. At the time of the announcement, not many details were provided beyond saying that they were building a management team with 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. Initially, the platform provided personal loans and savings accounts. It recently began offering investment capabilities, and it plans to eventually launch a checking account to be a one-stop shop for banking. 

Marcus has also expanded to the U.K., highlighting Goldman’s continued interest in serving Main Street customers. Both Stark and Ismail were central to building the partnerships, like the one with Apple and its credit card, behind the growth of Marcus.

Now that Stark and Ismail 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 and broader implications 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 financial literacy tools, credit score management and installment payment options (buy now, pay later). Next, we could see savings, investments or, perhaps, eventually a pivot into cryptocurrency. 

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. If a Walmart app comes along that integrates other capabilities via application programing interfaces, 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 (e.g., 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 become a finance super app.

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