What will Walmart’s launch of BNPL through One mean for the industry?

Walmart announced in April that it will be leveraging its majority-owned fintech One to offer BNPL options to its customers. This move is an addition to a growing list of retailers who are expanding into financial services like Apple and Amazon.

In 2022, Walmart’s One started offering some banking services to its own employees and some customers under the tutelage of new hires of Goldman Sachs’ Omer Ismail and David Stark. Before its launch of BNPL through One, Walmart partnered with Affirm to offer pay in four options to its customers. But now BNPL offerings by both One and Affirm compete for consumers’ attention in Walmart stores. 

As retailers like Walmart move deeper into financial services, how will their presence impact dedicated fintechs like Affirm and Klarna as well as the industry as a whole.

Impact on fintech competitors

Tearsheet research found that 55% of executives in the financial services industry view retail brands as the most significant threat to traditional FIs long term. While Affirm is already competing for wallets in Walmart stores, the entry of a retail brand that owns 8% of the market share in the industry could compel dedicated fintechs to offer more “attractive or creative financing options to both customers and other retailers to maintain market share,” according to Peter Galvin, Chief Growth Officer of NMI, a payments technology provider. 

This move may also allow Walmart to deepen its relationship with its customers, who already have access to financial services like debit rewards, early access to pay, and a high-yield savings option through One. “This strategic move not only bolsters Walmart’s competitive edge but also creates a deeper connection, enhanced engagement, and personalization for consumers who opt for buy now, pay later (BNPL) options,” said Galvin. 

For Walmart this is a chance to better engage younger consumers like Gen Z and Millennials, who have historically shown preference for this payment option. “Younger consumers are often more comfortable with digital-first solutions and may not have extensive credit history, making BNPL an attractive alternative to traditional credit card payments,” he said. 

This may bolster Walmart on the ecommerce side of things as well, due to younger consumers’ general preference for online channels. As such, Walmart will be able to offer a more one-stop shop solution while Affirm may be able to leverage wider availability with a merchant network 29,000 big. 

Meanwhile, Affirm is in a better position from the consumer trust and tech perspective, according to Galvin. Having been in the BNPL game much longer, Affirm has been able to build the kind of relative ubiquity, trust and awareness that only comes with time.  “This deep-rooted brand recognition is hard to replicate for newer retail brands just entering the space and could pose a challenge,” he said. 

However, there is a possibility that the recency of Walmart’s One may be mitigated by the large consumer base it may bring to the table.. As of July last year, 19% of BNPL users had reported using Apple Pay Later, compared to PayPal’s 39%, Afterpay’s 33% and Affirm’s 27%. While Apple Pay Later appears to be far behind in penetration than its established competitors, this survey was conducted in 2023, when Apple’s BNPL offering had only been in the market for one year, compared to PayPal’s three years. 

While Walmart may be able to work around its BNPL offerings’ newness with its wide consumer base, it is the technicality of the BNPL space that may prove to be harder to solve for. Affirm possesses far more data and likely has better algorithms than Walmart’s One at the moment, which may allow it to offer better products and at lower costs, according to Galvin. “These platforms are capable of handling more complex credit evaluations quickly and efficiently, offering a seamless user experience across multiple retailers,” said Galvin. Dedicated fintechs like Affirm and Klarna may also benefit from their experience with regulations and compliance requirements in the space. 

For now, it is unclear how this launch will impact Walmart’s partnership with Affirm. The retailer did discontinue its credit card partnership with Capital One early, having expressed its preference to involve One in the issuance of its own credit card. 

Beyond Walmart and Affirm, the broader question here is whether Walmart’s move signals a change in the direction of the industry at large. 

Impact on the financial services industry

In general, partnerships allow brands to focus on what they do well, without compromising on customer experience, according to Zachary Aron, US and Global Head of Payments at Deloitte. “This includes overall program and product management, the ability to manage risk elements like underwriting, credit line reviews, fraud protection and overall customer service in line with U.S. regulations.  Additionally, fintechs have the ability to design products that provide value beyond the retail customer, which can also enable further customer loyalty,” he said. 

For the most part, partnerships are the name of the game. “Only those retail brands with both significant scale as well as a banking license would be considered a threat,” said Aron, on the broader landscape of retail brands pushing into financial services.