Quick Thoughts: Walmart Pay Accelerates National Rollout as MCX Postpones

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Howard Mason



May 17, 2016

Quick Thoughts: Walmart Pay Accelerates National Rollout as MCX Postpones

“The King is dead. Long live the King!”

There were two pieces of news on May 16th that do not seem coincidental: Walmart Pay announced that it was extending its rollout from Kansas, Missouri, and Oklahoma to Texas and Arkansas ahead of an accelerated nationwide rollout expected by end-June[1], and the retailer payments consortium MCX announced that it would not be proceeding near-term with a nationwide rollout of its CurrentC app but rather focusing on working with banks as in its partnership with Chase. The likely explanation is that, following the announcement of Walmart Pay in December, fellow-members of MCX also shifted focus from CurrentC to payments-enabling their own-brand apps; for example, even as it tested CurrentC, Target was reported[2] to be exploring a “Target Pay” solution. For us, there are three takeaways:

  • First: Walmart Pay and Target Pay are less about competing with Apple Pay[3] and Android Pay and more about competing with Amazon through adding features to own-brand apps that are intended, according to WMT, “to transform the shopping experience by seamlessly connecting our online assets and our stores for customers”. Indeed, payments-enabling retailer apps to improve customer engagement is a strategic priority for Chief Marketing Officers and not merely an initiative from Treasury to reduce card acceptance costs. It is for this reason that Walmart Pay and other retailer apps will be “open” in the sense of supporting payment with any tender preferred by customers including Visa and MasterCard branded products.
  • Second: This does not imply a diminished threat to Visa and MasterCard. Having branded the consumer payments experience, and engaged consumers in a payments-enabled app that provides broad shopping convenience as opposed only to narrow payments utility, retailers are in a stronger position to steer customers to private-label tender whether credit or ACH-enabled debit. The motivation for retailers is that they would rather make interchange payments, currently paid via Visa and MasterCard to card-issuing banks who use them to fund bank-branded rewards, directly to consumers in the form of retailer-branded rewards; furthermore, retailers can supplement saved interchange on network-branded cards with manufacturer-funded coupons and other trade-spend (currently running at ~$200bn/year in the US versus ~$60bn for interchange).
  • Third: While CurrentC is finished as a stand-alone app, there are meaningful benefits to retailers from collaborating on a common acceptance brand so that, for example, a customer who has enrolled in, say, Walmart Pay with a private-label funding account can use that account at Target, and vice-versa. We think it likely that just as Chase Pay can be accepted at any retailer participating in the CurrentC brand so, over time, Walmart Pay and Target Pay will be interoperable. The result is improved convenience for customers through movement within the CurrentC acceptance ecosystem to an “enroll once, pay anywhere” approach and improved reach for retailer payment solutions (with access to ~90mm accounts being a key reason that MCX chose to work with Chase Pay). Furthermore, we expect to see retailer-specific rewards become exchangeable so that, for example, Walmart “points” can be redeemed at Target and vice-versa in a similar way that “miles” from different airlines are exchangeable. The generalization of this will be branded-currencies, such as Plenti points from AXP and Stars from SBUX, that can be earned and redeemed at multiple retailers.

Of course, all this is moot if customers choose not to embrace Walmart Pay in the same way that, after an initial novelty boost, they have been slow to adopt Apple Pay. We consider this unlikely and expect Walmart Pay to reach within 5-years at least the 20% penetration of in-store tender as Target RED enjoys today. In practice, the penetration is likely to be meaningfully higher because, while Apple Pay looks to improve on the card swipe which is tough to beat, Walmart Pay and other retailer solutions look to improve on checkout which will soon be viewed as an analogue relic.

More specifically, to complete a transaction at checkout, a customer may need to present four physical items: a card representing a primary funding account, a card representing a loyalty or gift account, a piece of paper representing a coupon, and, if there is a credit for a returned item, a receipt from a prior transaction. As illustrated here, Walmart Pay integrates all of these capabilities, bar coupon-redemption, into a single tap of a phone and, in particular, integrates the redemption of loyalty and gift currencies into the main payments stream; and we expect the earn-and-burn of manufacturer coupons to be added soon.

We continue to believe that mass consumer adoption of retailer-sponsored payments solutions integrated into shopping apps generates an important secular opportunity for the supporting ecosystem. This includes: private-label card lenders such as SYF that can provide balance-sheet capabilities and leverage the data generated in the payments process to support targeted marketing by retailer-clients; issuer-processors whose core business provides them with access to consumer checking accounts and hence the ability, through initiatives such as PayNet from FIS, to offer alternative debit rails to V and MA; and platform-providers, such as PYPL, who can support retailer-sponsored payment solutions through offering security and processing solutions across in-app, in-browser, and in-store channels.

©2016, SSR LLC, 1055 Washington Blvd, Stamford, CT 06901. All rights reserved. The information contained in this report has been obtained from sources believed to be reliable, and its accuracy and completeness is not guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein.  The views and other information provided are subject to change without notice.  This report is issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is not construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. The analyst principally responsible for the preparation of this research or a member of the analyst’s household holds a long equity position in the following stocks: JPM, C, BAC, WFC, and GS.

  1. http://venturebeat.com/2016/05/16/walmart-pays-big-rollout-begins-with-state-wide-launches-in-texas-and-arkansas/
  2. http://www.reuters.com/article/us-target-mobile-payment-exclusive-idUSKBN0U11U920151218
  3. Indeed, Walmart Pay leverages the fingerprint-scanning capabilities of iOS devices supporting TouchID.
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