Following the marked change in consumer spending and financing last year, a number of big-box stores have announced that they will be extending their offerings into fintech and financial services. Two of note are Walmart and Walgreens, who recently announced forthcoming payments cards and co-owned fintech startups. While the direction may seem uncharacteristic for both stores, the reasoning behind the intentions is strategic. Clearly for both, extending into financial services will be a key growth strategy for keeping up with customer shopping habits as they quickly evolve during the pandemic and beyond.
Last week, Walmart’s announcement of its impending fintech start-up with Robinhood and Credit Karma backer, Ribbit Capital, caused an immediate raise in stock value. With the majority stated to be owned by Walmart, investors immediately backed the decision causing a 1.5% increase in its stock value. The announcement indicates a further push in the company’s direction to appeal to younger consumers as they come of spending age.
Following this trend, drugstore chain Walgreens similarly announced that it will be pursuing a broader push into financial services with the launch of a credit card and prepaid debit card. The cards will be issued by Synchrony, backed by the Mastercard network, and will be linked to a new Walgreen’s loyalty program offering pandemic-inspired features. For Walgreens, enabling financing options for customers who lack monetary flexibility will ensure deepened access to its services as well as its pricier medical products. This may prove useful to families who are struggling to balance bill payments while buying essentials with a reduced household income.
What’s left unsaid is how this may affect retail banking when the mega-stores are internalizing their financial services to ensure their customer’s dollars are cashed in store. Customers are increasingly searching for new ways to pay outside of their traditional forms of financing. Having the ability to stretch beyond the paycheck, acquire early access to income, borrow short-term, and “buy now, pay later” has become crucial to some households. To this effect, CNBC found that buy now, pay later transactions for online orders went up by 109% during the holiday season between November 1 and December 31.
Only time will tell if these initiatives will hinder or help retail banks who are struggling to offer up-to-date services that respond to consumers’ changing needs, as the alt-bank and fintech sector continues to soar.