As Amazon grows the Bank of Amazon, Walmart is becoming the PayPal of retailers.
Walmart is expanding the reach of its U.S. money-transfer service Walmart2Walmart to recipients in 200 countries for a flat fee. The service, called Walmart2World, will be offered at all of the retailer's 4,700 U.S. locations starting this month through a partnership with MoneyGram.
Like any retailer, Walmart isn't exactly taking on the banking industry -- although it has its history of that -- but instead, it's making financial services more accessible to its existing customers in order to keep them and maybe increase their shopping activity.
Like PayPal before it, Walmart already emphasizes the physical channel for underbanked customers who can top up their account balances using cash or card at the point of sale. While it has more recently courted higher-income customers, it's now reaching out to its original customer segment by encouraging consumers to make in-store transactions: after a one-time setup of the money transfer service within the Walmart app, in-store shoppers can fast-track through the Mobile Express Lane to quickly complete their transaction. Receipts and transaction details are saved electronically.
"[Money transfer services] are like bread at the restaurant for Walmart; it's negligible revenue for them," said Daniel Ives, chief strategy officer at GBH Insights. "The broader strategy is to build up that product arsenal on the consumer side -- every Walmart customer globally is an Amazon customer that could be taken away."
A Walmart spokeswoman told Tearsheet that the company wants to offer its customers more choices to save time and money with transparent transfer fees, competitive exchange rates and near-immediate delivery of funds.
Walmart is using transparent, predictable pricing to hook customers. It charges $4 to send up to $50, $8 to send between $51 and $1,000, and $16 to send between $1,001 and $2,500.
Walmart is part of a group of major retailers like Overstock, Target and Amazon that are making forays into financial services. Industry analysts have long held that Walmart is making competitive moves against Amazon in areas like online shopping, delivery and now money services. Walmart's in-house money services keep its customers within its family of products. Since a cross-border currency transfer product isn't a focus area for Amazon, Walmart can use it to create a new level of closeness with loyal customers.
"This signifies Walmart's desire to be the center of a person's life in all aspects -- groceries, personal and home goods and financial services, and also helps them further establish their brand globally," said Talie Baker, senior analyst at Aite Group. "The money transfer business is extremely competitive and customers are very price sensitive."
Given the lack of a predictable price point for international wire transfers, Walmart's offering may prove compelling to customers already shopping at Walmart for low-priced consumer goods. Though fintech startups like Transferwise and WorldRemit offer competitively priced money-transfer services, Walmart has the advantage of a large, loyal customer base.
According to recent research, the average Walmart shopper is a white, 51-year-old female with an annual household income of $56,482. By contrast, the same study found that Target customers are on average five years younger and earn approximately $13,000 more annually per household than Walmart customers. Meanwhile, the average Amazon customer is 37 years old, and household income for Prime members is $90,000 annually. The race to lock in lower-income customers through in-store money services may be a way to solidify Walmart's hold on a demographic that's out of Amazon's reach, Morningstar analyst John Brick recently told Tearsheet.
Walmart's strategy to work with partners like MoneyGram for its international wire transfer service and Ria for domestic money transfers also marks a departure away from taking on banks. The company's bid to buy Franklin Bank of California was blocked in 2002 and a 2005 application for an industrial loan company charter (a banking license that lets a nonbank offer bank-type services) was withdrawn two years later.
The move into money services is less about profitability than a defensive action against the approach of competitors that offer low-priced consumer goods.
"Competing with the Amazon flywheel has been an uphill battle for Walmart," said Ives. "[Money transfer services] are ways to get further entrenched and put a fence around their customers so they can cross sell other products."