On 26 January 2022, Walmart, the world’s largest retailer, agreed to acquire two FinTech companies, Even and ONE, via Hazel, the independent FinTech unit launched in partnership with Walmart and Ribbit Capital. The deal is another step in Walmart’s core mission of helping customers save money and live better.
Tech – Even: Even is a leading financial benefits platform that pairs earned wage access with powerful tools for budgeting, emergency savings and visibility into projected net earnings to better support the financial health of its users. To date, Even has helped over 2 million members access more than $3 billion in on-demand pay and set aside over $300 million for emergencies, medical costs and other unexpected expenses.
Tech – ONE: ONE is a provider of banking services intended to unify banking experience and improve financial wellness. ONE's services bridge financial gaps by providing instant approval and immediate access to funds, increased credit limit and no interest charged on funds repaid within the month it is borrowed, as well as automatic savings from spending and earning, enabling customers to optimize their income and reach their financial goals more easily.
Non-Tech – Walmart: Walmart is America's largest retailer by sales, selling a variety of general merchandise and grocery items. Each week, approximately 220 million customers and members visit approximately 10,500 stores and clubs under 48 banners in 24 countries and eCommerce websites. The Company also operates several e-commerce properties apart from its own site, including Flipkart and shoes.com (it also owns a roughly 10% stake in Chinese online retailer JD.com).
On 26 January 2022, Walmart announced the acquisition of Even and ONE for an undisclosed amount, a deal that highlights the need for a solution to manage finances in today’s world.
Walmart interacts with millions of customers – including some who don’t have a relationship with a bank or a financial advisor. Almost a quarter of U.S. adults are unbanked or underbanked, and roughly 80% of FinTech users rely on multiple accounts to manage their finances. A recent PYMNTS US survey found that 67% of respondents would like to have two or more of their activities located in one place, while 11% said they want to use one app for managing all of their digital lives. The Even and ONE techquisitions are expected to support Walmart’s efforts to create a one-stop-shop solution for all its customers.
The combined business, which will operate under the brand name ONE, will provide users with an all-in-one financial services app to holistically manage their finances in one place. The company’s products and services will be made available directly to consumers and through employers and merchants, including access to Walmart’s 1.6 million U.S. associates and 100 million-plus weekly shoppers.
Upon closing of the transactions, the combined business will have more than 200 employees and be capitalised with more than $250 million in cash to fund future growth.
The deal demonstrates Walmart’s ability to continue to adapt to and serve consumer’s needs.
“Consumers everywhere are being left behind by the world of financial services. Our vision is clear: build on Even and ONE’s success to offer a product that offers consumers the best way to spend, the best way to access their wages and helps millions save and grow their money.”
- Omer Ismail, Incoming CEO, ONE
The deal rationale revolves around Walmart’s goal to accelerate its digital transformation by creating an all-in-one financial solution.
Walmart's two stated goals for serving financial services customers are to improve banking accessibility and cut product fragmentation.
Building a super-app is a natural way of move forward to accomplish these goals. A super-app entails a digital ecosystem of services and products located within a single ecosystem and user experience.
A Walmart-backed neobank has a significant competitive advantage due to its footprint and customer base. If Walmart leverages its stores, its footprint could unsettle banks in rural communities. As of 2019, 90% of Americans resided within 10 miles of one of Walmart’s locations.
The techquisition brings Hazel, a joint venture between Walmart and Ribbit Capital (one of the investors of Robinhood) out of the stealth mode.
“Joining forces with Hazel and ONE is a critical step to doing the most good for the most people. With these resources and this team, we're able to create real, tangible change in the lives of those who desperately need it. I can't wait to introduce the market to what is possible with people-first, technology-enabled personal finance.”
- David Baga, CEO, Even
Like most other techquisition deals, the market reacted favourably to the Even and ONE announcement given the positive outlook associated with the strategic potential of the techquisition and how it fits with Walmart’s digital strategy. Walmart's backing poses a big threat to US challengers like Chime, Revolut, and Varo that lack their own big investor.
On 26 January 2022, Walmart announced that it will acquire Even and ONE. Walmart’s share price increased by approximately 4% from 26 January to 3 February 2022 – more than the increase of approximately 3% in the S&P 500 during the same period – implying an addition of a net ca $3.5 billion to Walmart’s market capitalisation.
While the financial terms of the deals were undisclosed, the combined valuation of last funding rounds for ONE and Even was ~$400 million. Assuming the same valuation, the deal paid for itself by ca 9x+ in terms of market expectations. Even at 2x valuation of the last financing rounds, the deal effectively paid for itself by ca 4.5x.
Like most other techquisition deals, the market reacted favourably to the American Eagle’s announcement given the positive outlook associated with the strategic potential of the techquisition and how it fits with Quiet Logistics supply chain offering.
The size of the global FinTech market is estimated to grow from $113.2 billion in 2021 to $324.0 billion by 2026, a CAGR of 23.4%.
With increasing number of mobile users preferring online transactions, coupled with the fact that the implementation of FinTech significantly improves the customer experience by providing convenience in payments and delivery in the e-commerce, the global FinTech market demand will experience incredible growth in the future.
Infrastructure-based technology in the open platforms and application programming interfaces is modifying the future of the financial services industry, while the operational advancements offered by the automation of robotic processes (RPA), chatbots and distributed accounting technology (DLT) allow greater agility, efficiency, and precision.
Significant growth is foreseen in the technologies like artificial intelligence and blockchain over the next few years. AI interfaces and chatbots have revolutionized customer service in recent years, and its augmenting business will allow AI-oriented FinTech market to develop at a CAGR of around 21% in the next five years.
Walmart’s foray into the FinTech market show how the nation’s largest retailer is stepping up the pace in throwing its weight around in the banking world. While much has been made about the competitive threat of challenger banks or neobanks to the traditional bank business model, a competitive threat such as Walmart is likely a more potent one.
"The combination of these world-class teams and products will give ONE a unique opportunity to bring a new level of service and access to millions of Americans."
- Micky Malka, Managing Partner, Ribbit Capital
Walmart’s techquisition of Even and ONE is expected to offer a complete integrated solution that enables customers to save, borrow and receive money.
Sam Walton, the visionary founder of Walmart said, “If we work together, we'll lower the cost of living for everyone...we'll give the world an opportunity to see what it's like to save and have a better life." Walmart’s foray into tech-enabled financial services is in line with this vision.
Walmart is no longer just the largest global retailer; it is a behemoth with stakes across all promising and future oriented FinTech segments. This includes digital wallets, money transfer services, and now the super-app.
Walmart has realized the value inherent in the FinTech space and is fully geared to capitalize on the demand for price-sensitive and seamless financial services. With customers willing to shell out a great deal of money for personalized offerings, Walmart is now embracing the future-ready model with its arsenal of FinTech services in tow.
It’s worth mentioning that in addition to these techquisitions, Walmart also announced last month an investment in Plenty, an indoor vertical farming company. Walmart invested to bring the farm closer to the store, and to increase the efficiency and sustainability of Walmart’s supply chain. This is a deal that demonstrates the important shift taking place in the food industry today – sustainable food sourcing. Walmart is the first large U.S. retailer to significantly invest in vertical farming.
"Customers have made it clear that they want more from us in the financial services arena. Creating a simple, personalized app that allows users to manage their money in one place is the natural next step toward fulfilling that. We couldn’t be more excited about what this will mean for Walmart customers, associates and consumers everywhere as we try to help empower millions to improve their financial lives."
- John Furner, President and CEO, Walmart U.S.
Walmart’s techquisitions are a great example of how a traditional retailer is actively engaged in the journey of transforming itself to deliver greater value to its stakeholders – particularly its shareholders and customers – by properly positioning itself for the future, ready to tackle any disruptions, especially in a pandemic.
The essence of such a transformation unfolding is embedded in a strategy execution approach we have trademarked and call Techquisition, which my firm, Aquaa Partners, has designed and delivers to its clients every day as an experienced and trusted expert partner.