Walmart-backed fintech One introduces buy now, pay later

Walmart Majority-owned fintech startup One has started offering “buy now, pay later” loans for big-ticket items at some of the retailer’s more than 4,600 stores in the United States, CNBC has learned.

This decision puts One in direct competition with Affirmthe BNPL leader and exclusive installment loan provider to Walmart customers since 2019. It’s a relationship that the Bentonville, Arkansas, retailer recently expanded, introducing Affirm as a payment option at Walmart self-checkout kiosks.

It also likely indicates that a battle is brewing in the store aisles and e-commerce portals of America’s largest retailer. At issue is the role of a wide range of players, from fintech companies to card companies and established banks.

One’s move into credit is the clearest sign yet of its ambition to become a financial superapp, a mobile one-stop shop for saving, spending and borrowing money.

Since its appearance in 2021, attracting Goldman Sachs Veteran Omer Ismail as CEO, the fintech startup has intrigued and threatened a financial landscape dominated by banks – and poached talent from more established lenders and payments companies.

But the company, based in a cramped WeWork space in Manhattan, has operated mostly in stealth mode while developing its first products, including a debit account launching in 2022.

Today, One takes on some of Walmart’s existing partners, like Affirm, which helped the retail giant generate $648 billion in revenue last year.

During a recent CNBC visit to a Walmart store in New Jersey, ads for One and Affirm competed for attention among Apple products and Android smartphones in the store’s electronics section.

Offerings from One and Affirm were available at checkout, and loans from either provider were available for purchases starting at around $100 and costing up to several thousand dollars at an annual interest rate between 10% and 36%, according to their respective websites. .

Electronics, jewelry, power tools and auto accessories are eligible for loans, while groceries, alcohol and guns are not.

Buy now, pay later has gained popularity among consumers for everyday items as well as larger purchases. From January to March of this year, BNPL generated $19.2 billion in online spending, according to Adobe Analytics. This represents an increase of 12% year-on-year.

Walmart and One declined to comment for this article.

One’s growing role at Walmart raises the possibility that the company will force Affirm, Capital one and other third parties in some of the most coveted partnerships in American retail, according to industry experts.

“I have to imagine the goal is to have all of this, whether it’s a credit card, buy now, pay later loans or remittances, to unify it all into one application under a single brand, delivered online and through Walmart’s physical footprint, “said Jason Mikula, a consultant formerly employed in Goldman’s consumer division.

Affirm declined to comment on its partnership with Walmart. Shares of Affirm climbed 2% on Tuesday, rebounding after falling more than 8% in premarket activity.

For Walmart, One is part of a broader effort to develop new revenue streams beyond its retail stores, in areas such as finance and health care, following his rival. from Amazon playbook with cloud computing and streaming, among other segments. Walmart’s new businesses have higher margins than retail and are part of its plan to grow profits faster than sales.

In February, Walmart announced it would acquire TV maker Vizio for $2.3 billion to boost its advertising business, another growth area for the retailer.

When it comes to finance, One is just Walmart’s latest attempt to break into banking. Beginning in the 1990s, Walmart made repeated efforts to enter the industry by directly owning a banking arm, but each time it was blocked by lawmakers and industry groups fearing a “Bank of Walmart” crush the small lenders and crush the bigger ones.

To get around these concerns, Walmart took a more independent approach this time around. For One, the retailer created a joint venture with investment firm Ribbit Capital, known for backing fintech companies including Robin Hood, Credit Karma and Affirm – and has staffed the company with executives from all sectors of finance.

Walmart has not disclosed the amount of its investment in One.

The startup said it makes decisions independently of Walmart, although its board includes Walmart U.S. CEO John Furner and its CFO John David Rainey.

One does not have a banking license, but partners with Coastal Community Bank for debit cards and installment loans.

After its first attempts in banking failed, Walmart pursued a partnership strategy, partnering with a constellation of suppliers, including Capital One, Synchronization, MoneyGram, Green Point, and more recently, Affirm. Leveraging partners, the retailer has opened thousands of physical MoneyCenter locations within its stores to offer check cashing, sending and receiving payments, and tax services.

But executives at Walmart and One have made no secret of their ambition to become a major player in financial services by leapfrogging existing players through a clean slate effort.

One’s no-fee approach is particularly relevant to low- and middle-income Americans who are “financially underserved,” Rainey, a former PayPal executive, noted at a conference in December.

“We see a lot of that customer base, so I think it gives us an opportunity to participate in that space maybe in a way that others don’t,” Rainey said. “We can digitize a lot of the services that we provide physically today. One of them is the platform for that.”

About $1.6 billion in annual revenue could be generated from debit cards and short-term loans, and more than $4 billion if they expanded into investing and other areas, according to Morgan Stanley.

Walmart can use its size to expand One in other ways. It’s the largest private employer in the United States, with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for an enterprise version of One.

There are signs that One is getting more involved in lending beyond installment loans.

Walmart recently won a dispute with Capital one, allowing the retailer to end its credit card partnership years earlier than planned. Walmart sued Capital One last year, alleging its exclusive partnership with the card issuer was void after the card issuer failed to meet its contractual customer service obligations, claims Capital One denies.

The lawsuit has led to speculation that Walmart intends to have One manage the retailer’s co-branded cards and stores. In fact, in legal filings, Capital One itself has alleged that Walmart’s logic was less about handling complaints than shifting transactions to a company it owns.

“Based on information and belief, Walmart intends to offer its branded credit cards through One in the future,” Capital One said last year in response to Walmart’s lawsuit. “With One, Walmart is positioning itself to directly compete with Capital One by providing credit and payment products to Walmart customers.”

Capital One said last month it might appeal the decision. The company declined to comment further.

Meanwhile, Walmart said last year, when its lawsuit became public, that it would soon announce a new credit card option with “meaningful benefits and rewards.”

One has obtained lending licenses that allow it to operate in almost every U.S. state, according to filings and its website. The company’s app notifies users that credit building and credit score monitoring services will be available soon.

And even though One’s expansion threatens to supplant Walmart’s existing financial partners, Walmart’s efforts could also be seen as defensive.

Fintech players including The blocks Cash App, PayPal and Chime dominate account growth among bank account switchers and have made inroads with Walmart’s core demographic. The three services accounted for 60% of digital gamer registrations last year, according to data and consulting firm Curinos.

But One has the advantage of being majority owned by a company whose customers make more than 200 million visits per week.

It can offer them perks, including 3% cash back on Walmart purchases and a savings account that earns 5% interest annually, much higher than most banks, according to emails from One customers.

These terms enable customers to spend and save within the Walmart ecosystem and help the retailer understand them better. Morgan Stanley ” the analysts said in a 2022 research note.

“We have access to Walmart’s large and loyal customer base, the largest in the retail industry,” the analysts write. “This captive, underserved customer base gives One an advantage over other fintechs.”