Walmart to invest in Mexico’s Fintech market

US retail giant Walmart wants to top Mexico’s fintech market with its digital wallet Cashi, but analysts say the drive is strewn with potential pitfalls due to the proliferation of risky customers in the largely untapped market.

Walmart de Mexico said in April it had acquired Trafalgar, a payment app, to compete in a market dominated by Grupo Salinas’ Baz, Oxxo’s Spin and MercadoPago from MercadoLibre.

Executives at the Walmart unit expect the deal to “open up Cashi’s potential,” starting with transfers, withdrawals and remittances, while keeping the possibility of loans and other financial services open in the future.

“Constant Investment”

“We want to be the best financial services application in Mexico and that requires constant investment,” Marcelino Herrera, Walmex’s senior vice president of financial services, told Reuters.

The Walmex venture complements a desire by the American retailer to establish itself in the fintech segment, although ructions in the markets have given rise to concerns about newer forms of financing.

Walmex declined to say what it paid for Trafalgar. The company has said it will allocate around $210 million (191.69 million euros) to e-commerce and technology – including fintech – during 2023, or 14% of its total investments in Mexico and Central America.

Automation

Walmart plans over $15 billion (€13.69 billion) in capital spending on automation and alternative revenue streams by 2023, including its advertising business, third-party marketplace and deliveries.

The Bentonville, Arkansas-based chain expects those operations to contribute more to profitability over the next five years than its core retail business.

Digital wallets

Cashi began at the end of 2018, but only in stores of Walmex, Mexico’s largest private employer. The Trafalgar purchase should enable it to be deployed everywhere digital wallets are accepted.

Herrera said low banking penetration in Mexico, where less than half of adults have accounts, was an opportunity for Cashi.

“We have 5 million customers who visit our stores every day, and the vast majority don’t have access to a financial product, never mind a formal credit product,” Herrera said.

Still, analysts say the focus on unbanked or underbanked Mexicans could spell trouble for Walmex if it chooses to expand Cashi into a lending product.

“Very risky”

“The niche of customers this kind of fintech focuses on is very risky,” said Rodrigo Marimon, a Moody’s financial institutions analyst, pointing to recent insolvencies at non-bank lenders Credito Real, AlphaCredit and Unifin.

Jonathan Stahl, founder of financial and technology education website EduFintech, said the risk would emerge at Walmex if they get loans because of historical default rates.

“Change in Strategy”

“The credit card would be an important change in strategy at Walmart,” he said. “It would enter a riskier segment.”

The non-performing loan (NPL) ratio at the Mexican unit of Nubank, Latin America’s biggest fintech, was 12.2% in February, above the 11.4% average for microfinance firms, according to official data cited by Brazilian bank Bradesco.

Nu Mexico’s total consumer loans fell 1.6% in February, outpacing the 0.4% decline recorded by the microfinance industry as a whole, according to Bradesco’s April report.

Synergies

Walmart has not identified fintech as a top investment priority, but has poured money into it over the past year.

Walmart in March invested an additional $200 million (€182.5 million) in its majority-owned Indian fintech startup PhonePe to help it expand into new businesses such as insurance and wealth management. PhonePe has over 400 million registered users.

In the US, the retailer last year unveiled plans to branch out into digital bank accounts and offer financial services to its 1.7 million US employees and legions of weekly shoppers through its majority-owned fintech venture One, with plans to expand into loans and investment products.

Press agent

“We see synergies in financial services … that make us work more as a global company and in some ways more as a technology company, building technology products that can be leveraged across markets more than we have in the past,” Walmart CEO Doug McMillon said in December.

“And I think that will be even more true in the future.”

News by Reuters, edited by ESM – your source for the latest retail news. Click subscribe to register ESM: European Supermarket Magazine.