Quick View: Walmart Brands Payments – The Structural Significance of Walmart Pay

Print Friendly, PDF & Email


Howard Mason



December 10, 2015

Quick View: Walmart Brands Payments – The Structural Significance of Walmart Pay

Walmart Pay, announced today and available in some stores this month with a national rollout in 2016Q1, is as ground-breaking as it was inevitable.

It was inevitable because the core challenge for WMT versus AMZN is that it does not know the identity of the majority of its customers. Unlike on Amazon.com, customers do not log-in when they shop at a store so that the best WMT can hope for is to link transaction records by the primary account number or PAN on a payment card but this leads to fragmented histories when customers use different tender types and, as the industry moves to tokens (effectively one-time card numbers) breaks down altogether. WMT had attempted to address the issue of capturing the personally-identifying information or PII of customers through the Savings Catcher program which provides a price-match guarantee versus local competitors for customers who upload their receipt information online (either manually to Walmart.com or using the camera on a smartphone). It has been successful but, because of the customer friction involved in uploading information, limited to ~3% of receipts. In effect, Walmart Pay automates this process.

The importance of these data (transaction records linked to personally-identifying information) is illustrated by the comments of Neil Ashe, President and CEO or Walmart e-commerce: “Walmart Pay is not about improving payment for payments sake; it is about how we can use payment to create a better payment experience for our customers.” WMT will use the data generated from Walmart Pay to personalize the experience of shoppers both in its stores and on Walmart.com. The runway for this initiative is enormous: Target, which has just begun personalizing its Cartwheel app, comments that this has resulted already in a 10% increase in downloaded coupons. Walmart, of course, will be less coupon-oriented givens its everyday-low-pricing-strategy but the value of personalizing Walmart.com and of personalized messaging on the Walmart app will be to engender brand engagement among customers rather than notification fatigue.

Walmart Pay is groundbreaking because, like Starbucks before it, Walmart will now brand the consumer payments experience in its stores and, having achieved this branding, will be in a position to influence consumer choice of payment tender. Walmart Pay will accept all major tender types, so including Visa and MasterCard credit cards for example, which is important to ensuring broad initial adoption among Walmart customers. But Walmart, and not the issuer or network, can now shape the “top-of-wallet” choice. Indeed, Walmart Pay explicitly allows consumers to set “payment preferences” so that the wallet uses gift card balances ahead of Visa or MasterCard tender, for example. We think it is inevitable that Walmart will create incentives for its customers to prefer its private-label credit card, issued by SYF, over Visa credit and when a Walmart debit option is available, likely through MCX/FIS, to prefer that over Visa debit. Put another way, Walmart will offer incentives to customers to prefer its brand of tender rather than paying interchange which banks can use to persuade customers to prefer their brand of tender.

We sometimes hear the argument that retailers cannot compete with technology specialists because they do not have the engineering capabilities or ability to recruit top-flight talent. Walmart disagrees and employs 3,500 people in its innovation center, Walmart Labs, in San Bruno California which has acquired 14 start-ups and established Walmart Exchange WMX, the leading platform allowing brands to track at the SKU level sales through Walmart stores. The weakness of WMX is that the SKU-level information cannot consistently be linked to the PII of customers (so that a marketer does not know if a promoted sale is to a new or existing customer). Walmart Pay will help address this, and hence improve the efficiency of trade-spend which, running at $200bn annually in the US, is larger than the $60bn available to banks, via the Visa/MasterCard interchange process, to fund customer rewards. As discussed in our note of October 8th, titled “CurrentC and the Digitization of Trade Spend”, we view the use of retailer data to improve the efficiency of trade-spend as a key driver of winners and losers. The notion, in brief, is that a retailer which supports more efficient trade-spend from its manufacturer suppliers will gain a greater share of their trade spend and hence be able to offer advantaged terms to end-customers.

©2015, 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, BAC, WFC, and GS.

Print Friendly, PDF & Email