Walmart Seeks Way Into Your Wallet

Walmart’s recent patent application for a cryptocurrency system hints at the Bentonville retailer’s next move into the financial services sector.

Walmart’s proposed cryptocurrency would be similar to a reloadable gift card, according to the application filed in January with the U.S. Patent & Trademark Office and published Aug. 1.

“In effect, the idea is for consumers to give Walmart their money to hold onto rather than give it to a bank,” Jaret Seiberg, a financial services and housing policy analyst for Cowen Washington Research Group of Washington, D.C., wrote in an Aug. 5 policy note. “This will be seen as a threat to small banks and credit unions.”

Walmart said in the filing that it sees the digital currency as a way to help those who don’t have a bank account or those who have a bank account but also use financial services outside the banking system. Walmart said customers who use its digital currency would earn interest on their deposits.

But it doesn’t look like Walmart will be working on the cryptocurrency project anytime soon. A Walmart spokesman told Arkansas Business in a recent email that the company isn’t “currently doing any work on this patent, nor do we have plans to do so.”

Seiberg said a decision by Walmart to move forward with its digital currency would lead to congressional hearings. But he thinks Walmart’s program would find little opposition because the product is similar to existing financial products, like gift cards, that have found widespread acceptance.

Walmart’s cryptocurrency, in fact, could have an easier time getting congressional and regulatory approval than Facebook’s effort to develop a cryptocurrency called Libra, Seiberg said. Libra’s plan was to create a global currency and financial infrastructure to serve the 1.7 billion adults around the world who don’t have access to traditional banks. But this month, several credit card companies that had initially supported the project said they were dropping out of it as regulators and Congress questioned the initiative.

Walmart’s 10-page patent application describes its vision for the cryptocurrency. The digital money could be used if Walmart created a store format similar to Amazon’s Go, which allows shoppers to walk into one of its locations, shop and leave without dealing with a cashier or self-serve register. Amazon charges the customer’s account and sends a receipt for the items.

One of the biggest benefits to Walmart with the cryptocurrency would be lowering the retailer’s interchange fees, which is the money a company pays to financial institutions when a consumer uses a debit or credit card. Walmart has been a critic of the interchange fees and fought the issue in courts and in Washington.

Walmart said in a 2014 lawsuit against Visa that the interchange fees caused it to sustain “enormous damages.” Walmart was seeking more than $5 billion in damages. The case settled in 2017.

Seiberg, of the Cowen research group, said in his paper that if Walmart were to launch its cryptocurrency, the move would lower the amount of interchange fees that Walmart pays to banks because some consumers would use the Walmart digital money rather than debit or credit cards.

In 2014, to avoid interchange fees, Walmart, along with about 50 other retailers, supported the mobile payment platform CurrentC, created by a joint venture called MCX, the Merchant Customer Exchange of Boston. The pilot program was expected to be widely available in 2015, but it never went forward and MCX ended it in 2016.

Walmart didn’t mention interchange fees in its patent application.

Targeting the Unbanked

On Jan. 29, a Walmart entity, Walmart Apollo LLC, filed its patent application for a “system and method for digital currency via blockchain.”

Blockchain is a digital ledger of transactions. Like a Wikipedia or Google Docs file, the ledger can be viewed by multiple people at the same time, but no one can change the ledger unless everyone with access to it agrees to the change.

Walmart said in the filing that by using digital currency, people in low-income homes who find banking expensive would have another option for financial services.

In 2017, the FDIC found that 6.5% of U.S. households were “unbanked,” meaning that no one in the home had a checking or savings account, according to a study released in October 2018. It was the lowest proportion since the survey began in 2009. The FDIC said an additional 18.7% of U.S. households were “underbanked,” meaning the household had an account at a financial institution, but it also received financial products or services from outside the banking system.

Walmart’s cryptocurrency system would target the unbanked and underbanked and could be a way to offer banking services, although after Walmart failed to start a bank in the mid-2000s, it vowed not to try again.

Walmart said in its application that customers without a traditional bank account could create a microbank and the money placed in the account would gain interest.

For example, a customer could buy digital currency at the beginning of a month using any type of currency, such as U.S. dollars, bitcoins or yen. The digital currency might be tied to a national currency, such as the U.S. dollar, “so funds can be added or taken out easily,” the filing said.

“The digital currency value could, in some embodiment, be tied to other digital currencies.”

The cryptocurrency system would use an artificial intelligence program to help customers buy an amount of cryptocurrency according to their “budget, values, affinities, and preferences,” the filing said.

Gina Williams, the president and CEO of UARK Federal Credit Union in Fayetteville, reviewed Walmart’s patent application and said she is concerned about Walmart’s push to serve the underbanked with the service.

She said the retailer’s accounts would probably pay a little in interest. “And generally the underbanked aren’t super concerned about managing wealth as they are getting paycheck to paycheck,” Williams said.

Walmart’s cryptocurrency system seems to be wading into services that nonprofit credit unions provide, she said. Credit unions already serve the underbanked with programs that help them get out of debt and manage their money, Williams said. “Whenever you want to address the underbanked, Walmart’s for-profit business model doesn’t really seem like a good fit,” she said.

And Williams is concerned that Walmart could use the digital currency system to study customers’ purchases and then bombard them with ads. “People are tired of the Big Brother overreach, where retailers track how you shop,” she said.

Retailers “see you buy something one time and then you continually get texted or you get spammed with emails.”

Walmart also sees its cryptocurrency being used in a small-store format, where customers can pick products from open shelves, coolers or freezers and then use a self-checkout kiosk to pay for their products, without having to deal with a cashier, it said.

That sounds like Walmart could be preparing to compete with Amazon Go. Amazon rolled out its Amazon Go program last year and now has more than a dozen locations in San Francisco, Seattle, Chicago and New York.

Walmart’s digital currency also could be used at “selected partners” and as a rewards program for consumers to receive benefits, Walmart said.

“It is true that the use for the [digital currency] could expand over time and it could eventually have the same uses as envisioned for Libra,” Seiberg wrote. “Yet the initial use is really a prepaid debit card that does not run off the interchange system. That will be much easier to sell to Capitol Hill if Walmart opts to proceed.”