Walmart de México is getting ready to shakeup the fintech market. The country’s largest retail group is beefing up its digital wallet with a range of new capabilities in a direct challenge to the biggest players in the industry.
Following its recent acquisition of the local fintech Trafalgar, the retailer will be able to integrate its wallet, Cashi, into the financial system as an IFPE, or Electronic Payment Funds Institution. The move will allow Walmart de México to offer customers a digital account for making instant transfers, deposits and withdrawals, among other services. It’s an offering with significant potential in the hands of a company that welcomes at least 5 million Mexicans through its doors every day.
The retail giant says it aims to leverage its extensive physical presence in the country coupled with the strength of its brand to break into the bustling local digital finance market. While it’s still early days, company officials tell iupana the firm doesn’t have designs on the credit market, at least in the short term.
“We are in the process of defining the new product: what benefits the Cashi account will have. But... not all our competitors have the credibility among Mexicans that Walmart has today,” says Marcelino Herrera, vice president of financial services for Walmart de México and Central America. "Not everyone has the ability to have customers in their stores every day.”
Up until now, the scope of Cashi’s functions was limited to topping up mobile phones, digital payments for some online services and purchases at stores under the retail giant’s four brands: Bodega Aurrerá, Walmart Express, Sam's Club and Walmart. Its acquisition of Trafalgar opens up a range of financial possibilities for the wallet, such as sending and receiving remittances, receiving loans disbursed by other financial institutions, integrating loyalty programs and channeling promotions for the company’s self-service stores. In the coming months, Cashi will also issue a debit card.
Walmart wants to see its customers, and even those who shop elsewhere, choose Cashi over rival products, says Herrera. “It’ll be a game changer,” he says.
Nevertheless, the company, which is owned by the Bentonville, Arkansas headquartered Walmart —one of the world’s biggest retailers— has formidable opponents in the market for digital accounts. They include beverage company Femsa, which uses the ubiquity of its OXXO stores as a hook for its wallet; and even Mercado Libre, which has been gaining ground in the Mexican retail space with along with its Mercado Pago account.
Christopher Luna, CEO of Cashi, stresses that the strategy with Trafalgar will always be closely aligned with Walmart’s goals. “In the end, the core of our business is retail,” he says, adding: “An IFPE license is a complement to being able to deliver on our ecosystem strategy.”
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Walmart as a channel for credit
While the company is not authorized to offer customers credit directly, it has alliances with third party banks such as Inbursa and Bradesco, which allow it to offer loans indirectly under an embedded finance strategy.
“It’s not one of our priorities right now,” Herrera says when asked about the possibility of Walmart providing credit to customers. “It could happen in the future —I don’t it rule out—but we have a lot to learn about the business first,” he says.
Other major retailers in the region, such as Falabella and Ripley in Chile and Magazine Luiza in Brazil have implemented banking and fintech strategies focused on consumer credit, which has become an important source of income.
For now, the credit strategy at Cashi, which had 5.4 million users at the end of 2022, will be limited to forging more alliances to make it easier for clients to access solutions from a wider array of lenders, with the ultimate goal of increasing sales at Walmart stores, says Herrera.
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Why make an acquisition?
Buying a licensed company, such as Trafalgar, seems to be the shortest way to break into the financial market in Mexico. While the process of obtaining a fintech license has been streamlined, it still takes some companies up to three years to complete it, prompting the industry to lobby regulators for a review of the rules.
Walmart executives say the main reason for opting for an acquisition was to save time.
“It wasn’t the only alternative we evaluated at the time but we’re convinced that it’s the one that allows us: one, to accelerate; and two, to maintain the flexibility that we want to have towards our clients,” says Cashi’s CEO Luna.
Walmart took a different route in 2009, when it obtained a banking license and launched its financial vertical Banco Walmart. It sold the bank in 2015 to Grupo Financiero Inbursa.
“The world has changed drastically since we had that multiple banking license. It’s a totally different business model, much more flexible,” says Luna.
"We don’t rule out this license growing in the future," he adds.