Walmart and payments: 10 things you need to know

Published
  • April 06 2018, 1:10pm EDT

Walmart is already a retail heavyweight, and it has never shied from innovative projects to change the way people pay.

Over the years it has battled not only with mega-rivals like Target and Amazon, but also with the key stakeholders of the payments industry itself. At the same time, it has worked with many of these companies as partners, giving Walmart the means to not only lower its own costs but also experiment with daring new services in the digital age.

This listicle is compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald and David Heun. Click the links in each item to read more.

Walmart takes on the world

Building on a service called Walmart2Walmart, which allowed transfers only among U.S. Walmart stores, the new international service — called Walmart2World — is launching in Walmart's 4,700 U.S. stores through a partnership with MoneyGram International.

The new service gives Walmart a chance to cash in on the massive market for cross-border payments, fueled by an increasingly digital economy and global investments in using blockchain to reduce costs of international money movement.

"Walmart likes to be a 'bank' because there is a lot of room for profitability and to provide better service in that sector," said Larry Berlin, vice president with Chicago-based First Analysis Securities. "By offering these types of financial services, they are also looking for foot traffic and more sales in their stores."

It is becoming more common for a Walmart shoppers to go to the financial services section of a store and feel pretty much like they are in a bank branch.

"You'll see the MoneyGram services, you'll see the various prepaid card offerings, you'll see maybe a bank branch ATM and pitches for mobile payment applications, things like that," Berlin said. "They tried to be a bank and got turned down, and they have worked hard to get around that."

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Walmart's prized prepaid card: Bluebird

The Bluebird prepaid card is a staple of Walmart's financial offerings, and the retailer has made sure to keep its features up to date.

Launched in October 2012 in partnership with American Express, the card carries lower fees than many of its competitors – a business model that Amex said is feasible in part because Amex owns and operates its own payment network, which means that its operating expenses are largely fixed.

Shortly after the card's launch, Amex declared that approximately 80% of Bluebird enrollees were new to Amex, and 45% of purchasers are under age 35 — and that most purchases were taking place outside of Walmart stores, indicating that it held appeal to more than just Walmart's most loyal shoppers.

But Walmart's brand is still an integral part of the Bluebird card, as evidenced by the product's most recent updates. Last year, Walmart debuted the Bluebird2Walmart money transfer service, allowing Bluebird account holders to use an app to digitally send money for cash pickup at Walmart store locations. Pricing is consistent with the Walmart2Walmart transfer service, a domestic U.S. transfer service that allows customers to send funds for recipients to pick up at other Walmart stores.

Picking big fights with big brands

Not every retailer can make good on a threat to outright ban one of the world's largest card networks. But that's just what Walmart's Canadian operation did in 2016.

On the surface, Walmart Canada's decision to stop accepting Visa credit cards in protest of its fees comes across as simply another conflict between the giant retailer and the card network. But it was also setting the stage for something bigger.

Walmart was also deeply engaged in a legal dispute against Visa over debit routing, and had also shut the network's credit cards out of its transactions at its Sam's Club warehouse stores. The card network was put on the defensive after it reportedly agreed to rock-bottom pricing to win a contract at Costco away from rival American Express. Visa's then-CEO Charlie Scharf repeatedly called that situation "unique," and noted that it guaranteed that Visa would be the only card brand accepted in those stores.

And both companies had less at stake in this dispute. Taking into account that Interac drives the majority of debit transactions in Canada, it is likely that even more debit transactions take place at Walmart Canada stores than in the U.S.

Michael Cook, Walmart's vice president and treasurer, stated publicly at a 2011 SourceMedia conference that debit and cash transactions represented the majority of transactions in U.S. Walmart stores, while credit and debit transactions dominated Sam's Clubs transactions.

The dispute resolved itself quietly in early 2017, with neither company disclosing the details of their cease-fire. But as a result, Walmart once again opened its doors — and cash registers — to Visa throughout Canada.

An alliance of sworn enemies

Back in the earliest days of the mobile wallet market, before the announcement of Apple Pay and the rival "Pay" brands, Walmart concluded that if it is not able to dictate the direction of this market, it would not reap the rewards.

It predicted correctly that if banks or technology companies controlled the customer's mobile wallet app, they would gain the most valuable data and insights into customer spending. Indeed, when Apple Pay finally did launch in 2014, a key selling point was tokenization — a process that protected card data by masking much of it from the merchant.

Walmart headed this off by playing a key role in developing the Merchant Customer Exchange, a nationwide alliance of retailers, with direct competitors like Target and Best Buy, in 2013. These companies not only agreed to develop their own mobile wallet to share across their brands, but to do so exclusively, blocking rival wallets like Apple Pay until their exclusivity agreements ran out.

Unfortunately for Walmart, the MCX wallet, called CurrentC, languished in pilot while Apple Pay, Android Pay and Samsung Pay built relationships with merchants on their own. As the CurrentC exclusivity agreements expired, most MCX participants quickly jumped on board with other brands — perhaps the biggest nail in MCX's coffin was Best Buy's decision to not only accept Apple Pay, but to allow Apple to announce the win on its own earnings call. Up to that point, Best Buy had been a staunch opponent of any kind of NFC-based mobile wallet.

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A Seinfeld-esque scheme to battle Amazon

It's no secret that Amazon's business model is a major threat to Walmart, but their battle has heightened in the past year as Amazon has made aggressive efforts to take over grocery sales. Even before Amazon spent $13.7 billion to buy Whole Foods, it was building out a network for selling groceries online for pickup or delivery.

Last year, Walmart began testing a delivery program that leverages its store staff as delivery drivers in a decidedly manual response to the digital threat of Amazon.com. And it just might work.

Conceptually this initiative may be a stroke of genius, not unlike the Seinfeld “Bottle Deposit” episode where the economics of bottle redemption out of state are resolved by leveraging a character's mail truck. But, as with the Seinfeld episode, the devil is in the details — converting store clerks to delivery drivers may be a can of worms that Walmart doesn’t want to open, creating staffing and liability issues.

But, in the face of competitive pressures — notably from Amazon, which intends to become a ‘Top 5’ U.S. grocery delivery company by 2025 — Walmart may have no choice.

“Not only can this cut shipping costs and get packages to their final destinations faster and more efficiently, it creates a special win-win-win for customers, associates and the business,” wrote Marc Lore, president and CEO of Walmart U.S. eCommerce, in an official Walmart blog post.

Walmart associates are fully in control of the experience and participation is optional. If they choose to opt in, associates choose how many packages they can deliver, the size and weight limits of those packages and which days they’re able to make deliveries after work.

The ability for Walmart employees to earn a bit more money for doing something that they would be doing anyway — driving home — may be appealing. However, using employees for a task that they were not hired for could be fraught with liability issues.

Chase gives Walmart fresh ammo for its card-fee fight

In 2016, Walmart announced a pact with JPMorgan Chase that was anything but routine.

The processing deal, which expands on the companies' earlier relationship for handling Walmart’s e-commerce transactions, diverts Chase card payments at more than 5,000 Walmart and Sam’s Club stores through ChaseNet, a closed-loop system designed to slash costs for merchants.

Chase accomplishes this by acting as the acquirer, network and issuer for transactions where both the cardholder and the merchant are Chase clients. And from the perspective of Walmart, this deal hands it a long-desired holy grail: less expensive Visa transactions.

“We will still have a relationship with Visa for non-Chase transactions,” but the deal with Chase "will bring much-needed competition to the payments markets," said Randy Hargrove, a Walmart spokesman, at the time of the announcement.

Walmart has been a scathing critic of Visa's fees and routing structure, repeatedly confronting the card network in court and going so far as to ban Visa cards at certain locations in Canada.

The deal with Chase gives Walmart significant new leverage in how it handles Visa transactions. “Walmart will have the ability to selectively route transactions based on the performance of the payment providers,” Hargrove said.

ChaseNet has its roots in a 10-year contract that Visa entered with Chase in 2013 to create a customized processing and end-to-end payments platform. ChaseNet has since become the foundation of Chase Pay, the bank's mobile wallet.

Walmart is inviting other issuers to consider similar arrangements, Hargrove hinted. “We believe other issuers would benefit from the efficiencies created by connecting directly with Walmart," he said.

Walmart Pay picks up where MCX left off

On the surface, Walmart Pay — a mobile wallet accessed through Walmart's mobile app — is everything Walmart envisioned the MCX CurrentC wallet would be.

But it also shows what's possible when the company doesn't have to worry about pleasing every other retailer in the U.S.

Walmart Pay came about in December 2015 — before the MCX/CurrentC project was suspended — in part because the company "realigned our technology teams because we want more speed and more customer-centric and cost-efficient innovations like this one," president and CEO Doug McMillon said in a 2016 earnings call.

One goal of Walmart Pay was to drive more usage of the Walmart mobile app by the brand's in-store shoppers.

Though Walmart said at the time that it would continue to support MCX, the mega-retailer's decision to launch its own mobile wallet brand was probably the final nail in MCX's coffin. The multi-retailer venture sold off its technology to JPMorgan Chase in early 2017.

Since Walmart Pay's launch, Walmart has nurtured the product, adding features such as the ability to immediately use a virtual version of Walmart’s store-brand credit card or its Walmart Mastercard from within the app upon approval.

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Bringing retail into the home

Despite the widespread concern over the creepiness of Amazon Key — a service that lets couriers unlock the doors to customers' homes to deliver Amazon packages — Walmart already has its own version in the works.

While Amazon promises that couriers will only leave packages inside the door before locking up, Walmart is working with Deliv to offer a service that pushes boundaries even further. For example, if a customer orders groceries from Walmart, the courier could be asked to put the groceries away once inside the customer's home.

The service, announced in November 2017, is testing in the San Jose area for deliveries scheduled between 8 a.m. and 8 p.m.

Buy, Robot

Another way Walmart is one-upping Amazon is through its use of robots. While Amazon built its cashierless Go store to hide technology in the walls and ceilings, Walmart is content to let its machines roam its aisles.

In October 2017, Walmart expanded its use of shelf-scanning robots, which check stock levels, pricing and misplaced items, creating one of the largest deployments of shelf-scanning robots to date.

The robots, manufactured by Bossa Nova robotics, use 3D imaging to move around obstacles in the aisles, and can also make notes to return to an aisle later if it's completely blocked.

The robots aren't designed to replace human staff, and humans will continue to stock shelves, since — among other reasons — the robots have difficulty grabbing objects.

A digital door into a physical market

Walmart's $3 billion acquisition of e-commerce portal Jet.com in 2016 was designed to counter Amazon's growth. It may also give Walmart a way to tap into the New York market, which has been largely elusive to the big box retailer.

In mid-2017 Jet.com began collaborating with Latch, a digital delivery system that allows people to unlock delivery doors in apartment buildings remotely. The two companies agreed to jointly invest in outfitting 1,000 apartment buildings with the technology.

The collaboration is a marketing deal, as there will be no direct transactional link between the two companies. But Walmart can use the partnership to encourage online shopping and payments in areas where it does not have physical stores by offering easy delivery to buildings without doormen.