If you follow financial services, you’re likely aware of Walmart’s longstanding ambition to become a bank. The retail giant applied for a license almost two decades ago — only to pull it after the banking industry objected loudly, saying Walmart would have an unfair advantage because of its massive customer base.
Walmart’s latest financial services foray came into clearer focus when the company announced this spring that it would sever its credit card business with Capital One Financial COF . Walmart cited disappointments with Capital One’s customer service, but that’s unlikely the real reason. Implicitly, Walmart signaled that it’s now in a position to connect its vast consumer businesses to financial services without requiring the help of a large established financial institution.
Walmart’s tactic with Capital One might be viewed as predatory: Cut out an ally and take over the business. But is that really such a new concept? Amazon and Apple have also been relying less on other companies — taking a DIY approach to logistics and payments, or placing themselves at the center of an ecosystem of small, agile partners. All three companies have won praise for doing the same in almost all aspects of their businesses, except perhaps banking.
Presuming it moves forward, a big benefit to Walmart will be that it will be able to avoid paying much in customer-acquisition costs. Capital One had been incurring most of that expense; with Walmart saying it will offer a new option, it’s a good bet current card holders will sign up. In this way, Walmart is closing the loop in its ecosystem, following in the path of tech giants including Apple that create lucrative incentives and make switching services burdensome. As a bonus, fees from cards and other financial services help defray the costs of those programs, creating a flywheel effect — a holy grail in business. With that in mind, it’s hard to see any downside in Walmart ditching Capital One.
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