Walmart Pay is far more than just a Simple Payment App

Walmart (NYSE: WMT) just demonstrated that it is still the cutting edge of retail by rolling out its payment app; Walmart Pay, in 4,600 US stores.

If news stories about Walmart Pay are correct; the app is an impressive piece of retail technology that puts Walmart well ahead of competitors. The new app actually gives Walmart some capabilities that even Apple Pay lacks.

Walmart Pay vs Apple Pay

These capabilities include:

• The ability track customer purchases. This can reduce shipping and restocking costs, by telling Walmart which items to stock in specific stores.

• The capability to create automatic shopping lists for customers based on previous purchases. This has huge potential to increase business if it could be combined with Walmart.com; or the company’s same-delivery service experiment with Uber and Lyft. One possibility is the automatic delivery of items a person usually orders to his or her home.

• The potential to create customized discounts or other deals for individual patrons. The loyalty card program at Kroger (NYSE: KR) is one of the forces driving that retailer’s phenomenal growth.

• Walmart Pay is growing fast; the volume of transactions on the app grew by 45% during the week that ended on July 6, 2016, a Walmart press release claims.

• Customers seem to love the app. Walmart reported that 88% of the purchases made with it; were repeat business from existing users.

• Integration with Walmart’s smartphone app which provides a one-stop shopping experience. If that could be integrated with Walmart.com; it would create a digital shopping platform rivaling Amazon (NASDAQ: AMZN).

• Potential integration with smartphone apps offered by other companies including Chase Pay and Shell’s Fuel Rewards app.

• The potential to increase Walmart’s gas station and convenience store business by using the app for pay at the pump.

• The use of QR or Quick Response Code technology. QR works by scanning a code with the phone’s camera, instead of the wireless Near Field Communication or NFC used in Apple Pay.

• QR Code provides a higher level of security than NFC because it requires a direct scan of an image. This means there’s no wireless signal for hackers to intercept. That might be one reason why Walmart and other retailers like Kroger and Costco (NASDAQ: COST) are so leery of Apple Pay.

• The QR code will be cheaper to implement than NFC because there will be no transmitter required. All that is needed is an image on the cash register and a phone signal.

• Something else to consider is that the QR Code would be easier to integrate with blockchain; the encrypted-ledger technology that is the basis of Bitcoin. Many experts consider blockchain the future of ecommerce and online finance.

• Customers can use gift cards, credit cards, debit cards and prepaid cards to pay through Walmart Pay. That’s critical because it can be used by lower-income customers, some of whom may not have bank accounts or credit cards.

• Walmart Pay can be integrated with Walmart’s other financial products; including check cashing, bill payment and money transfer.

• This might make Walmart a sort of bank, Joe Sixpack could cash his paycheck there and have it uploaded to Walmart Pay. That would put pressure on other retailers to take Walmart Pay.

• Another advantage is that customers would be able to use funds deposited at Walmart to make purchases on Walmart.com.

• There would be major savings at registers and in store for Walmart by eliminating administrative and labor costs.

• There are no receipts with Walmart Pay transactions. This might represent a major savings because Walmart would no longer have to pay for ink and register tapes. It also eliminates a labor cost, by eliminating some of the time associates spend replacing register tape.

• Walmart Pay would make it easier to expand same-day delivery and store pick up services. A customer with Walmart Pay would be able to pay the delivery person for a grocery order when it arrived. A customer might also be able to use it to pay for items from the store at the curb. A long term goal might be to integrate Walmart Pay with ride hailing or delivery app such as Uber.

• Another use for Walmart Pay would be at the Grab & Go pickup lockers the company has been testing in Canada and the United Kingdom. The lockers are placed at locations like Seven-11 stores and they contain merchandise customers order online. Walmart Pay would provide a convenient means of paying for such orders.

Why Walmart Pay could add a Lot of Value to Walmart

Okay so Walmart Pay is a cutting-edge digital payment solution, but will it add value to Walmart? If it works as well as Alibaba’s (NYSE: BABA) Alipay the answer will be a resounding yes.

Alipay has been so successful that Alibaba spun it off into a privately-held unicorn called Ant Financial Services. The Wall Street Journal reported that Ant Financial now has a valuation of $60 billion and was able to raise $4.5 billion in private investment in April.

Ant Financial is so valuable because Alipay gives it a veritable license to print money. Credit Suisse estimated that 58% of the online payments in China go through Alipay. Alipay also has around 450 million users, making it the world’s most popular digital wallet.

Digital payment has been so profitable for Ant that it has plans for an IPO, The Journal reported. Ant even bought a stake a in China’s Postal Savings Bank and has plans for investments that are farther afield including India’s digital Wallet provider Paytm according to The Journal.

If it were as successful as Alipay, Walmart Pay might form the basis of a financial services subsidiary at the retail behemoth. Just a small fraction of Walmart’s $483.21 billion revenues would make Walmart Pay a formidable rival to America’s most successful digital wallet provider PayPal Holdings (NASDAQ: PYPL).

Will Walmart Become a Lender?

It would also make Walmart a major player in consumer banking which would attract the attention of regulators and potentially a competitor to payment processors like Visa (NYSE: V) and American Express (NYSE: AXP). Walmart Pay might also put the retailer in a position to compete with banks in lending.

Ant Financial already lends money to 20 million small businesses in China through its subsidiaries, MyBank and Ant Micro Loan, The Journal reported. PayPal had made more than $1 billion worth small business loans as of February 27, 2016, Debanked reported.

Walmart would be in a position to make sure loans because it would use shopping and payment data to determine which of its customers are a good risk. For example it might be able to identify a person with a “poor credit rating” who makes a lot of debit or gift-card purchases through Walmart Pay. That indicates a person who has the capability to pay off a loan, but may lack access to bank credit. Currently the only lending usually available to these people are things like payday loans and car title loans, so this may provide them an alternative.

This might give Walmart access to a huge new revenue stream, the so-called pay-day lending industry in the United States generated around $46 billion a year in 2015 according to Yahoo. Revenue for online payday lenders grew from $1.5 billion to $4 billion a year between 2006 and 2015.

Walmart Pay is far more than just a simple payment app

Walmart Pay is far more than just a simple payment app. It might be the basis for a financial services platform with the potential to expand business and generate a lot of revenue for Walmart. That means it might add a lot of value to the retail giant in the future.

This revenue will not appear overnight, because like Amazon, Walmart plays a long game. It’ll take several years to appear, but the potential for Walmart Pay to be a huge money maker is there.