Walmart sets stage to offer banking services — in India

The concept of a “Walmart bank” has long elicited fear in the U.S. that the big box store will put traditional banks out of business. And while Walmart has partnered with many banks to offer remittances and prepaid cards, it has always stayed at the fringes of the banking market.

But it turns out Walmart now owns a company that could soon offer traditional banking services in India.

Flipkart, an Indian e-commerce company which Walmart bought in August, has launched a cardless credit program for consumers and is expected to apply for an NBFC licence, or a classification as non-bank that provides credit and other financial services in India.

Daniel Acker/Bloomberg

It's a natural progression for Flipkart, an e-commerce and payment technology company that has rapidly become one of India’s largest online marketplaces.That made it India’s top free agent for both Amazon and Walmart, which tossed multi-billion dollar offers at Flipkart in an attempt to gain a foothold in India, a country with a huge e-commerce and digital payment market. India is also relatively more open to fintech and retail outsiders than China.

Walmart won the battle for Flipkart with a $16 billion deal. One of Flipkart’s first initiatives as a Walmart subsidiary is a credit product that operates much like a loan. Flipkart envisions the product, which provides an instant credit line of up to $845, as a way to reach underbanked consumers. Once it obtains its license, Flipkart will lend directly to consumers and through partnerships with other NBFCs and financial services firms, reports LiveMint, a local technology site. Walmart and Flipkart did not return requests for comment.

A license would give the Walmart unit a chance to offer a wider range of financial services than the parent company can in the U.S.

While Walmart does offer a menu of financial products in Latin America, for years Walmart has made targeted attempts to offer direct financial services in the U.S. But it usually runs into a mix of state and federal regulations and very impassioned opposition from the existing banking industry in the U.S. As a result, Walmart offers mostly rudimentary financial services through partners such as Green Dot and remittances through MoneyGram and its own transfer service.

Walmart’s not the only U.S. company to hit a wall with its forays into banking. Square’s attempt to obtain an industrial loan license drew strong opposition from banking trade groups, and Social Finance drew a similar response.

The runway is much less complicated in India, where the regulatory environment appears to encourage nontraditional competition.

“Walmart, via Flipkart, would have more of an opening in India as compared with its home market of the U.S.,” said Michelle Evans, an analyst at Euromonitor International.

There’s also an existing and open financial innovation culture in India, particularly following the country’s demonetization two years ago. Mobile network operators, card networks and fintechs such as Paytm all operate in India, and have paired payments with other financial services.

Even the ride-sharing app Grab, which has an office in India, has ambitions to offer broader financial services.

“The U.S. has one of the world’s most politicized banking systems,” said Eric Grover, a principal at Intrepid Ventures. “In India there’s a licensing structure for nontraditional banks that is clearly intended to facilitate more competition from outside the traditional banking sector. If the same activity is subject to the same regulation, the more well-heeled players competing should be good.”

But India is not entirely without regulatory friction. While not as strict as China, India has rules that require a local presence, particularly for data management, though it is considering easing those regulations.

"The Reserve Bank of India has stringent requirements for both domestic and foreign entities looking to set up such operations, including efforts to boost financial inclusion," Evans said.