BofA Is Ready To Compete With “Bank Of Walmart” And Other Tech Startups, CEO Says
Bank of America Corp. is confident in its growth prospects even as competition intensifies from fintechs including Walmart Inc.’s startup. BofA Is Ready to Compete With Bank Of Walmart And Other Tech Startups, CEO Says
“I respect every competitor, I don’t fear any competitor,” Bank of America Chief Executive Officer Brian Moynihan said in an interview Monday on Bloomberg Television. “We study all competitor moves, whether it’s the fintech disruptors or major players.”
Walmart lured a pair of senior bankers last month from Goldman Sachs Group Inc. to run its fledgling financial-technology operation. The move struck fear on Wall Street, which has been urging regulators to halt efforts by retailers and startups to offer core banking products to millions of consumers.
Bank of America has an advantage because of its scale, Moynihan said, citing the company’s 40 million digital customers.
“What makes us unique is we serve all segments of clients,” from mass-market consumers to wealthy individuals and large businesses, he said.
Earlier this month, rival bank CEO Jamie Dimon of JPMorgan Chase & Co. said the company is prepared for intensifying competition.
Here Are Other Takeaways From Moynihan’s Interview:
Consumer spending and credit-card use are rebounding strongly, he said, adding that April data will probably show “massive” growth compared with 2020, when strict lockdowns were imposed during the pandemic.
On the potential for the economy to overheat: “There are people concerned in the market — we all have that concern, because inflation is tough to fight if it gets embedded in there. But there’s a lot of temporary factors.”
On 10-year Treasury yields: “The reason that it’s going up is because people are seeing the economy recover from the health-care crisis,” Moynihan said. “As the economy normalizes and the growth rate comes up and we get above 2%, you’ll see a little higher rate, but it’ll still be, in the grand scheme of things, one of the lowest rates we’ve seen in a long, long time.”
Walmart’s Latest Foray Into Finance Makes A Friend Of An Old Foe
One of Walmart Inc.’s longtime foes conceded the retailer’s latest foray into banking could end well for consumers.
“There are still a lot of people who want a physical location to go to for their banking services, and Walmart could provide that with all its stores,” said Sheila Bair, who oversaw the Federal Deposit Insurance Corp. when the retail giant last applied for a banking charter. Bair placed a moratorium on the application, which Walmart ultimately withdrew in 2007 after years of controversy.
Walmart this week hired a pair of senior Goldman Sachs Group Inc. bankers to run a financial-technology startup it’s creating with the venture capital firm Ribbit Capital. The world’s largest retailer has been pretty tight-lipped about its plans for the fledgling unit, but has said it doesn’t currently have plans to apply for a banking charter.
Walmart last applied for a charter in 2005, at the time arguing it could save $30 million a year from processing credit- and debit-card transactions in-house. This time around, Walmart has said it hopes to offer affordable financial services to the millions who already shop at the retailer.
“We need to know what Walmart plans,” Bair said in an interview on Bloomberg Television. “If they just plan to fatten their profit margins, well good for them but that’s not really a public-policy reason to provide the charter.”
One in four U.S. adults is considered unbanked or underbanked in the U.S., according to the nonprofit Financial Health Network. Together, this group pays nearly $200 billion a year in fees and interest on financial products.
Even for consumers with a bank account, the fees can be substantial. For instance, banks collect roughly $17 billion a year from overdraft-related fees, according to the consultancy Oliver Wyman. Much of that is generated from a small subset of customers who overdraft one or more times a month.
The frequent overdrafters end up accounting for more than half of the profitability of mass-market checking accounts, Oliver Wyman found. That means lower-income consumers often subsidize free checking accounts for their wealthier counterparts.
“If Walmart can democratize — or further democratize — credit and banking services and provide it at the cost that you and I get, then I think that would be hugely beneficial,” Bair said.
What Walmart Can Learn From A Failed British Banking Experiment
The world’s biggest retailer is going where others have gone (and failed) before: financial services. It’ll need a different playbook.
In spring 2009, as the world reeled from the financial crisis, Terry Leahy, then chief executive officer of Tesco Plc, set out a bold ambition: to transform Britain’s biggest retailer into the “People’s Bank.”
With many lenders’ reputations tarnished, Tesco and rival J Sainsbury Plc spotted an opportunity to capitalize on the trust in their grocery brands and capture a slice of the U.K. banking market. But the two overshot. Fast forward a decade, and Tesco has retrenched from offering mortgages and current accounts. Sainsbury is considering a sale of its bank.
Now Walmart Inc. has its own lofty financial services ambitions. The world’s biggest retailer recently formed a fintech startup in the U.S. and hired the head of Goldman Sachs Group Inc.’s consumer bank to lead it. Its timing may be better than that of the British chains, with financial regulators less worried about fragility in the system and new technology making it easier to offer services outside of traditional banks. Even so, if it’s serious about building a “Bank of Walmart,” the company will need to avoid making the same mistakes.
Tesco and Sainsbury first added products like credit cards, loans and insurance in the 1990s after striking joint ventures with banks. These efforts trundled along for a decade or so until the 2008 crisis, after which the grocers took full control of their financial businesses. This is when things got tricky.
The retailers underestimated the complexity of building a banking arm and the scale needed to compete with incumbents. Going it alone meant investing in all their own systems.
Distracted by this and other ambitions (Tesco wanted to expand globally), they lost sight of their core grocery markets at a crucial time — when consumers (and sales) were migrating to the web and low-cost competitors were stealing market share. Meanwhile, U.K. regulators were stepping up their oversight of banks and increasing capital requirements, making financial services even more burdensome.
Each supermarket has probably invested up to 1 billion pounds ($1.4 billion) in creating a freestanding bank. Yet Sainsbury’s makes an annual operating profit in the range of tens of millions of pounds. Tesco makes more from financial services — between 150 million and 200 million pounds a year, excluding one-off charges — but it’s hardly the dominance that Leahy had in mind.
Walmart has perhaps learned from their experiences. Rather than go it alone, the big-box giant formed its new fintech company with venture capital firm Ribbit Capital. It has also said it expects the startup’s growth “may come through partnerships and acquisitions.”
Although Walmart has offered few details about its ambitions, the breadcrumbs it has dropped suggest there won’t be a big push to open physical bank branches. A spokesperson told Bloomberg News that the company is not planning to seek ILC status, which would allow it to offer services including accepting deposits and making loans.
Instead, Brett Biggs, Walmart’s chief financial officer, said recently that the venture is an opportunity for something “more sophisticated, more digital” than its current offerings, which include check cashing and money transfers. Here, Ribbit’s involvement is telling, as the investment firm has backed fintech disruptors such as Affirm Holdings Inc., which offers the “buy now, pay later” format that has become ubiquitous on online shopping sites.
Walmart will have to work hard to avoid the British supermarkets’ biggest misstep: getting distracted from new competitors entering their core retail business. In the years after the financial crisis, the cash-strapped middle-classes turned to the no-frills German grocers Aldi and Lidl that had expanded across Europe.
The risk of distraction is even higher for Walmart, given that it’s in the throes of transforming its primary business to compete against Amazon Inc. This year it is plowing billions of dollars into efforts such as opening more microfulfillment centers — areas in its stores where robots help workers assemble online grocery orders.
It is also looking to bolster its Walmart Connect advertising business, which it hopes will become a significant revenue stream.
This is a lot to manage on top of launching a fintech startup, though it should help that this entity will be a separate company. And Walmart’s core U.S. grocery business is firing on all cylinders.
Walmart should also take heed of what the U.K. supermarket banks did right: They were brilliant at leveraging the customer data tied to their loyalty programs. Tesco’s Clubcard, for example, has 20 million members. As long as customers give the supermarket permission to use their information, it knows what they buy, whether they visit the same store every week and how much they spend — pretty useful intelligence for determining how reliable they will be in making loan repayments or how far they drive to price car insurance.
Walmart doesn’t have a traditional loyalty program, but it has a vast storehouse of data about how customers behave in supermarkets and online. Its new Walmart+ membership, which includes free grocery delivery and other perks, should add to its trove. The company should harness that data to figure out which fintech products make most sense for its customers.
Even with their data advantage, British supermarkets failed to upend the banking industry. This underlines just how challenging it will be to stop the “Bank of Walmart” going the same way as Tesco’s “People’s Bank.”
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