Inside Walmart’s Financial Revolution: The Rise of One and the Battle for Retail Banking

Walmart’s financial technology startup One, in which Walmart holds the majority stake, has started offering “buy now, pay later” loans for expensive items at over 4,600 of its stores across the United States, as per information obtained by CNBC.

This move pits One directly against Affirm, the leader in “buy now, pay later” services, which has been the exclusive provider of installment loans for Walmart customers since 2019. Walmart recently expanded its partnership with Affirm by introducing it as a payment option at self-checkout kiosks in its stores.

This development suggests that competition is brewing between various players in both the physical and online retail spaces of America’s largest retailer. The competition involves fintech companies, credit card firms, and traditional banks.

One’s foray into lending is the clearest indication yet of its ambition to become a comprehensive financial platform, offering services like saving, spending, and borrowing money through a mobile app.

Since its inception in 2021, with the recruitment of Omer Ismail, a former Goldman Sachs executive, as CEO, One has caught the attention and posed a challenge to the banking industry. It has also attracted talent from established financial institutions and payment companies.

Walmart’s fintech One offers “buy now, pay later” loans at over 4,600 U.S. stores. (Credit: Bloomberg)

Although headquartered in a small space in Manhattan’s WeWork building, One has largely operated discreetly while developing its initial products, such as a debit account introduced in 2022.

Now, One is competing directly with some of Walmart’s existing partners like Affirm, which contributed to the retail giant’s $648 billion in revenue last year.

Based on a recent visit by CNBC to a Walmart store in New Jersey, it is reported that advertisements for both One and Affirm competed for attention alongside Apple products and Android smartphones in the electronics section.

Both One and Affirm were offering their services at checkout, allowing customers to take out loans for purchases ranging from around $100 to several thousand dollars, with annual interest rates between 10% to 36%, according to their websites.

These loans are available for items like electronics, jewelry, power tools, and automotive accessories, but not for groceries, alcohol, or weapons.

“Buy now, pay later” has become popular among consumers for both everyday items and larger purchases. From January to March of this year, BNPL contributed to $19.2 billion in online spending, marking a 12% increase compared to the previous year, according to Adobe Analytics.

Future Of Both

One’s expanding role at Walmart could potentially lead to the exclusion of third-party partners like Affirm and Capital One from key partnerships in American retail, according to industry experts.

walmart buy now pay later
Walmart is already growing it’s ‘buy now and pay later’ option. (Credits: Walmart)

Jason Mikula, a former Goldman Sachs consultant, speculated that Walmart’s aim might be to integrate various financial services, including credit cards and buy now, pay later loans, into a single app under its brand, accessible online and in Walmart stores.

Affirm declined to comment on its partnership with Walmart. Affirm’s shares rose 2% on Tuesday, rebounding from an 8% drop in premarket trading.

One is seen as a broader strategy to diversify revenue beyond retail, by Walmart following Amazon’s lead in ventures like cloud computing and streaming. Walmart’s newer ventures, with higher profit margins than retail, are central to its plan to increase profits faster than sales.

In February, Walmart announced its $2.3 billion acquisition of TV maker Vizio to strengthen its advertising business, another growth area for the retailer.

Walmart’s Banking Ventures

Walmart’s entry into banking has been a long journey, dating back to the 1990s, when it faced opposition from lawmakers and industry groups concerned about its potential dominance in the industry.

Despite repeated attempts to establish a banking arm, often referred to as the “Bank of Walmart,” these efforts were consistently blocked.

Capital One Walmart Reward Mastercard
Capital One Walmart Reward Mastercard (Credits: Walmart)

In its latest attempt, Walmart took a different approach, forming a joint venture with investment firm Ribbit Capital to create One. This new financial arm operates independently but includes Walmart executives on its board, signaling Walmart’s serious commitment to banking services.

One’s Approach and Partnerships

One, although lacking a banking license, collaborates with Coastal Community Bank for its debit card and installment loans. This strategic partnership allows One to offer financial services while circumventing the regulatory hurdles associated with obtaining a banking license.

Additionally, Walmart has formed partnerships with other financial service providers like Capital One, Synchrony, MoneyGram, and Green Dot to offer various financial services in its stores. These partnerships enable Walmart to provide a wide range of financial solutions to its customers without directly owning a bank.

One’s Growth Strategy and Competitive Aspect

One’s ambitious goal is to become a major player in financial services, particularly targeting low- and middle-income Americans.

Affirm Holdings
One competes directly with Affirm, expanding Walmart’s financial services in-store.

With plans to digitize many services and offer no-fee options, One aims to fill the gap for underserved customers in the financial market.

Recent developments suggest that One is expanding its lending services, potentially taking over Walmart’s co-branded and store cards from partners like Capital One. This move indicates a deeper push into lending beyond installment loans.

Also, One has obtained lending licenses to operate in nearly every U.S. state and plans to introduce credit-building and credit score monitoring services soon.

While One’s expansion poses a threat to existing financial partners, it also serves as a defensive strategy for Walmart against fintech players like Cash App, PayPal, and Chime, which have been gaining traction among Walmart’s core demographic.

One’s majority ownership by Walmart, coupled with enticing offers like 3% cashback on Walmart purchases and a savings account with 5% annual interest, keeps customers within the Walmart ecosystem, providing the retailer with valuable insights into consumer behavior.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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