business news in context, analysis with attitude

Bloomberg reports that Walmart has made an important move as it looks to "become a one-stop shop for consumers’ financial needs" - it has hired "a pair of senior bankers from Goldman Sachs Group Inc. to run its fledgling financial technology startup."

According to the story, "To lead the effort, Walmart plucked Omer Ismail, a longtime veteran of Goldman Sachs who was a key architect of the lender’s consumer efforts in recent years. Ismail will bring along David Stark, who inked Goldman’s partnership with Apple Inc. and oversaw its tie-ups with JetBlue Airways Corp. and Inc.

"Ismail’s hiring could be a precursor to Walmart filing an application to become a bank of its own following a Federal Deposit Insurance Corp. rule late last year that paved the way for non-financial firms to seek banking charters. Banks have been adamant that these new charters for so-called industrial loan companies allow firms to enter banking while escaping the capital and other liquidity demands they are forced to follow."

While Walmart has said it has no plans to file for such a charter, its CEO, Doug McMillon, "has begun to tease some of his ambitions, telling analysts just weeks ago that customers have been asking the retailer to offer affordable financial products and that he wants to find ways to 'monetize' the retailer’s vast 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 JPMorgan, Bank of America Corp. and Wells Fargo & Co."

The Wall Street Journal notes that "Mr. Ismail, who first joined Goldman nearly 20 years ago, was among a group of executives who came up with a strategy to expand into digital banking services in 2014. By the end of last year, that business generated $1.2 billion in annual revenue, had amassed $97 billion in deposits and held $8 billion in consumer-loan balances."

The hirings "struck fear on 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," Bloomberg writes.

The story says that "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 financial technology startups such as the banking startup Revolut and Credit Karma, which allows consumers to check their credit scores and compare financial products. In some cases, the firm even has had stakes in companies that Walmart already does business with. So it is with Affirm, the installment lender that already provides financing to Walmart customers online."

KC's View:

I think there is plenty to be concerned about in terms of consumer power if Walmart is able to open a bank, but I suspect that should be more worrisome to the traditional financial services industry than to potential customers.  I've been arguing this for a long time - Walmart would bring real competition to a business segment that desperately needs it.  All you need to know is that the financial services business has spent millions on lobbyists to prevent this ever happening.

The Bloomberg story gives one example - overdraft charges, "the fees that banks assess when a consumer spends more than they have in their account. The country’s largest banks collect $17 billion a year in overdraft fees, and regulators have found that much of that comes from a subset of consumers who overdraw their accounts one or more times each month."

Imagine if The Bank of Walmart lowered or eliminated overdraft fees.  Then imagine of Amazon decided to get into the act.

Think we'd see a banking revolution?

I just think we need to see sufficient regulation that the revolution doesn't lead to a collapse of the system.