Why is Walmart doing Pay by Bank?

Weekly Rant(s) ??

Why is Walmart doing Pay by Bank?

Walmart will launch a Pay by Bank offering. Customers will be able to pay instantly when shopping online.

1. Because cards are expensive
2. Because merchants have been at this for decades
3. And because the experience is finally good enough, it could be a genuine replacement (it feels real-time).

The Fiserv service integrates with TCH, FedNow, and the major open finance providers (Plaid, Finicity, Akoya, MX), to deliver Pay by Bank as a payments option.

Why Walmart is motivated

They're most impacted by cost out of almost anyone. Walmart is one of the world's largest merchants. Its business operates on tiny margins, and its whole brand is about price. Any cost they can remove goes directly to the bottom line.

They've got a track record of launching finance products. Historically, merchants launched their own credit cards and even tried countless times to get decoupled debit (a card that uses ACH) to work. Walmart also has an extensive portfolio of wallets, co-brand cards, and initiatives.

Walmart has

• A Prepaid Debit card
• A credit card
• A rewards card
• Bill payment and check cashing
• Money transfer (via partnerships)

They've also tried to be a Bank but backed away due to regulatory hurdles. They launched a mobile payments product that, again, they closed after limited traction.

They're motivated and persistent.

And why now?

It's real-time, a slick user experience, and a lower fee, and now its a regulatory mandate (Under 1033).

Real-time is a game changer for Pay by Bank. If money appears to move instantly, it's far better for consumers and merchants. The merchant isn't losing stock to get paid in 3 days, and the consumer isn't shocked when money leaves their account later. This is a UX upgrade that cannot be underestimated.

Pay by Bank with open finance is much slicker than traditional methods. The tokenized, secure authentication into a bank portal feels secure. Once a customer has done it once, it becomes second nature.

Lower fees are a reality as FedNow grows. While it's likely the vast majority of volume will go on the more expensive TCH rail, FedNow could slowly, one day, eventually go mainstream, and it is ultra cheap. It looks like Walmart is making a bet on improving economics over time.

The fees could be so low merchants will offer incentives to switch. I've spotted countless screenshots of companies like Airbnb or Uber offering 10% or 5% off to use pay by Bank instead of card rails.

The regulatory mandate makes open finance and open payments an inescapable reality. The mindset shift among banks toward open finance is palpable. It's gone from hostile to, "OK, we have to do this. How do we get upside?"

Fiserv is aggregating the aggregators to make Pay by Bank easy to buy. I didn't see this one coming, but it makes complete sense. If you want to pay by bank, Open finance has a coverage problem. 60% of the time, it works every time unless you integrate it with all the aggregators. That doesn't work for payments. So why not have the payment companies you already use do the aggregation?

Where does this leave Pay by Bank and payments?

The future of payments is multi-rail. Cards are Paid by bank, and RTP is by default. The winners will be the wallets who can create the stickiest consumer experience. Simplify the complex, make payments rewarding, and automate the mess.

?? Mini Rant 2: Embedded AI for finance is the new embedded finance.

Most financial institutions lack the capacity or capability to build modern AI agents.

(There are exceptions to every rule, but not all banks are big).

The practical challenge of constantly adjusting, tweaking, and managing models for compliance and performance is?significant. When new models are released daily, it's like building on quicksand. As a regulated bank, you can't afford compliance mistakes.?

Embedded AI for finance is the obvious solution.

Specialist providers manage the heavy lifting of training, managing, and optimizing AI Agents, whether they're internal or customer-facing. This won't be for everyone.

Just as some cutting-edge Fintech companies built their own in-house core banking and payments, they'll build their own AI. But for everyone else (95%+ of the industry), they'll use Embedded AI.

?? Mini Rant 3: AI Agents - mind the terminology gap.

I've had several conversations about agents this week. They're confusing because they're filled with hype, and everyone means something different.

Due to the nature of my job, I get to see and hear so many slices of the industry, so I'm sharing my thoughts out loud in the hope it helps you in some way.

As a reminder, my definition of an AI agent is as follows:

More importantly, the concept of an AI Agent is a go-to-market and way to package AI that buyers understand.

Then, someone mentioned AI Agent levels.

1. L1 Analysis - I can review the data and reccomend
2. L2 Decision - I've decided this is the answer push send
3. L3 Action - I've decided the answer and pushed send

I'm going to set aside that my definition of an agent is an L3 agent, and anything prior is smart GenAI. This is still helpful. Terminology is emerging, and the industry will coalesce around something eventually.

I often find it helpful to imagine use cases.

• Level 1 agent: I've reviewed our invoices, and here are the correct ones you should pay
• Level? 2 agent: Here are the correct invoices to pay. Click Approve, and I will pay them
• Level 3 agent: I paid the correct invoices.

So there it is.

Your potpourri for the week.

Want something longer form?

You should check out f/acc, finance accelerated means for the future of Fintech.

ST.

4 Fintech Companies ??

1. Every - The Back office for founders

Every helps founders incorporate and set up banking, payroll, benefits, accounting, and taxes from a single platform. The banking looks like many B2B Neobanks with high-yield treasury management, cards, and bill payments (e.g., Mercury). AI-powered bookkeeping and tax filing help ask questions about your data.

?? Why did nobody build this before? This is the logical consequence of everything being embeddable. Someone would come along, rebundle it, and sprinkle on GenAI to drive insights that don't require a PhD in Microsoft Excel. I've been looking for a Netsuite killer + bank account combo, and this could one day become just that. If this works half as well as their website makes it look, these guys will do damage in the market. Rippling, Gusto et al. just got a competitor. Holy moly. Imagine if Stripe went BIG and acquired this.

2. Cavela - AI Supplier Matching and Buying

Cavela helps brands and startups source suppliers for wholesale goods (like clothing, cookware, beauty, etc.). It's a conversational interface that manages hundreds of quotes via email and PDFs and pulls them into a simple summary. It helps handle price negotiation and claims to save, on average, 40% vs. existing suppliers without impacting quality. It then handles samples, ordering and quality control.

?? Procurement AI Agents plus embedded finance would be cool. Cavela is cool by itself. Having a team who does that is expensive for companies sourcing parts. For startups doing merch, it's usually whoever is at the top of Google. But why wouldn't this be monetized via embedded finance? Why not finance your invoices against sales?

3. Saturn - The Financial Advice AI

Saturn has trained an AI model on compliance for financial advice. It records meeting notes, emails, CRM data and teams meetings to help financial advisors save time writing up notes and manual entry. It packages this data into a dashboard for compliance teams to ensure advisors follow rules on things like disclosure,

?? It's kinda like Gong for Financial advisors. Except; most financial advisors won't use Gong (and most people in a financial institution wouldn't). If you haven't used Gong it's genius in sales and client conversations. It records calls, provides summaries and action updates, and becomes the default way to share information in companies. It also provides data on how the team could have done better in a client call. That is for financial advisors, but on all unstructured data? That's cool.

4. NetNow - Trade Credit Automation

NetNow helps companies that offer trade credit to their buyers manage the credit offering without PDFs or emails and provides real-time access to bank data.

?? Instead of using a BNPL for business offered by a 3rd party lender, some companies choose to lend directly. These companies aren't banks, and they're often doing it in a very manual way. NetNow is displacing the ERP, PDFs, and spreadsheets with a simple SaaS platform.

Things to know ??

1. UK Digital Bank Starling fined $39m for “facilitating financial crime”

The UK Regulator the Financial Conduct Authority (FCA) found the startup didn’t have proper financial crime controls from 2021 to 2023. This followed a major review after German Fintech Wirecard (once dubbed Europe’s PayPal) famously imploded.

According to the FCA release “Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions.”

?? Controlling for sanctions is hard. Potential new customers from countries like Iran, Russia or Cuba should be flagged as “high risk,” and subject to enhanced due diligence.

?? It’s not as simple as checking the passport and OFAC list. If you’re a business owner from a sanctioned country like Russia, one of the best ways to move money is to own a part of a small UK business. Then open a small business account in the UK at a bank that only does basic checks.

?? Numerous banks have been accused of this because of a challenging issue with UBOs. It’s often hard to identify the “ultimate beneficial owner” or UBO. Slick SMB onboarding for companies with complex structures might miss who the UBOs are. The same can easily happen in a branch. What looks like a simple small UK business often isn’t. These additional checks (enhanced due diligence or EDD) are often applied for large corporates but not small businesses.

?? Building everything in house has its downsides. Starling famously built everything in-house, but some stuff like this is better outsourced. Solutions like Sardine* or ComplyAdvantage do advanced UBO screening.

?? What about Monzo and Revolut? The FCA dropped its probe against Monzo, and Revolut has now progressed most of the way to a full banking license. This suggests both have their AML house in order.

?? Start-up did a bad thing gets clicks but lets keep this in context. In 2021, Natwest paid $364m, and in 2022, Santander UK paid $140m for AML related failings. These failings happen to all banks, not just digital ones. Starling will be fine; they’ll IPO and ride off into the sunset as a success story.

2. MasterCard will buy subscription management startup Minna.

Mastercard on Tuesday said it’s agreed to acquire Minna Technologies, a subscription management software startup. According to Juniper Research data, there are 6.8 billion subscriptions globally, a number that’s expected to jump to 9.3 billion by 2028.

This will become a default feature for any card issuer.

Why? Here's why ??

?? Getting out of a subscription is hard. It's how those companies win. Sticky revenue and low churn.

?? It's a great feature and becoming an expectation of users. Every bank should offer this.

?? MasterCard has all the banks as clients and can likely bake this in to their offering.

?? You have to wonder how far these companies could go without other products. What do you sell after subscription management?

?? This feels like a very solid exit for all involved. MasterCard can push it to their banks. Minna has a lot of opportunities. VCs likely did ok too.

Good Reads ??

1. Secret CFO - Meet the Bankers

?? This is spot on. There's no such thing as one giant Bank. There are many with the same logo. Most of them don't know how to work together.

?? This fragmentation is a Fintech opportunity. If a Fintech company can become modular and global, it has a real opportunity to expand the scale of the enterprises it serves.

That's all, folks. ??

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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.

(2) All companies or assets mentioned by the author in which the author has a personal and/or financial interest are denoted with a *. None of the above constitutes investment advice, and you should seek independent advice before making any investment decisions.

(3) Any companies mentioned are top of mind and used for illustrative purposes only.

(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel—strong opinions weakly held

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