OBSERVATIONS FROM THE FINTECH SNARK TANK
Walmart announced that it applied for a cryptocurrency patent and, predictably, the cryptopress began speculating about the giant retailers’ plans and intentions. CCN wrote:
“The move to patent a blockchain-based stablecoin variant generates speculation. Is Walmart trying to compete with Facebook Libra? Will CEO Doug McMillon be hauled in before legislators to defend his company’s right to innovate? Let’s not forget their over 2 million employees who could be paid in this new currency and immediately find themselves with access to the budding global crypto economy. The only thing that could make this better for the retailer and crypto adoption is if Walmart acquired Facebook.”
It’s and interesting turn of events from a year ago when BGR wrote:
Rather than designing its own cryptocurrency for use in its stores—which is exactly the kind of dumb thing that crypto speculators are doing right now—the company seems to be using the only good part of the crypto technology, the blockchain, and leaving the rest to die.”
I guess the retailer is thinking of doing something dumb because its patent application suggested that a Walmart cryptocurrency could:
- Become an ecosystem payment mechanism.Walmart’s filing stated that “the digital currency may be pegged to the US dollar and available for use only at selected retailers or partners. In other embodiments, the digital currency is available for use anywhere. The digital currency can provide a fee-free, or fee-minimal place to store wealth that can be spent, for example, at retailers and, if needed, easily converted to cash.”
- Bank the unbanked. According to Walmart’s application, ““Low-income households that find banking expensive, may have an alternative way to handle wealth at an institution that can supply the majority of their day-to-day financial and product needs.”
- Eliminate credit cards. According to Coindesk, “Other novel features suggested in the very broad filing include the ability to remove the need for credit cards, and acting as a pre-approved biometric (e.g., fingerprint or eye pattern) credit.” The patent application said “A person is the ‘credit card’ to their own digital value bank.”
Bloomberg added to the confusion by writing “Walmart appears be pondering whether to test waters in the world of cryptocurrencies, following the steps of Facebook” and then reporting:
Even if approved, Walmart doesn’t appear close to launching a coin similar to Facebook’s proposed Libra. Kory Lundberg, a spokesman for Walmart, wrote in an email that ‘we don’t have any plans for this patent at this time.'”
Why Walmart Wants a Cryptocurrency
Some of the speculation about a Walmart cryptocurrency is a bit hard to stomach, especially as it relates to:
- Payroll. Paying Walmart’s 2 million employees in the new cryptocurrency? Really? You’ve been in Walmart stores before. Do the stores’ employees strike you as the type who want “access to the budding global crypto economy”? Furthermore, do you think Walmart wants to spend the money it would take to retool its payroll systems to pay people in a cryptocurrency?
- Banking the unbanked. Citing “banking the unbanked” as a benefit of cryptocurrency is pablum to appease regulators. Many “low-income households that find banking expensive” already have “an alternative way to handle wealth.” They’re called pre-paid debit cards. An Aite Group study found that half of unbanked households in the US use this product.
There are two primary reasons why Walmart wants a cryptocurrency: 1) Reduce interchange fees, and 2) Enhance cross-border remittances.
The Interchange Bogey
Walmart had $500 in net sales in 2018. One survey estimated that 23 percent of transactions at grocery stores are done on credit. Thus, a ‘Walmart Coin’ has the potential to save the supermarket giant $2.3 billion a year, representing an impressive 22 percent potential increase to the company’s bottom line.”
Ignoring the typo in Walmart’s revenue (it’s ~$515 billion), the publication’s numbers understate how much Walmart pays in interchange by only including credit sales.
The study referred to is TSYS’ annual US Consumer Payment Study which found that 23% of grocery transactions were made with a credit card, but that 52% were made with a debit card (which merchants pay interchange fees on). In addition, the TSYS study found that 19% of discount department store transactions were made with a credit card, and 45% made with a debit card.
A 2014 article from Business Insider estimated that Walmart paid $3 billion in interchange fees in 2013, and that was six years ago when cash and check payment activity was greater than it is today.
The interchange bogey has long been at the core of Walmart’s efforts.
A few years ago–when the Merchant Customer Exchange (MCX) consortium was forming–I had the opportunity to interview Lee Scott, former CEO, and, at the time, chairman of the board at Walmart. I asked him why, in the face of so many failed consortia before it, would MCX succeed? He said:
I don’t know that MCX will succeed, and I don’t care if does as long as Visa suffers.”
Companies do things because of what’s in their DNA–fighting Visa and interchange are in Walmart’s DNA.
The Remittance Opportunity
Walmart has had a long relationship with MoneyGram, and while a Walmart cryptocurrency could conceivably replace that business arrangement, there are t0o many hurdles and obstacles to make that happen.
But the “back office” remittances opportunities stemming from a Walmart cryptocurrency are appealing to the retailer.
According to Charles Potts, Fintech Catalyst at the Advanced Technology Development Center (ATDC) at Georgia Tech, a cryptocurrency could help Walmart “bypass the Federal Reserve’s Directo a Mexico project as well as SWIFT and ACH. For the same reason Chase is building their own SWIFT replacement, having your own exchange–which is really what crypto facilitates–deleverages FX risk between US dollar and other currencies like the peso.”
Walmart the Subversive
Interestingly, just as many cryptocurrency fans are driven by the subversive nature of the technology and a desire for decentralized currency, Walmart’s intentions aren’t too dissimilar. Both reasons for a cryptocurrency are attempts to improve the bottom line by skirting or avoiding federal government interference. Oh those radicals down in Bentonville!