With the Cashi digital wallet, American retail giant Walmart (WMT.N) hopes to dominate Mexico’s fintech market.
However, critics believe that effort is fraught with dangers because of the abundance of problematic customers in the mostly undeveloped market.
To compete in a sector dominated by the sole Grupo Salinas’ Baz, the Oxxo’s (FEMSAUBD.MX) Spin, and the well-established MercadoPago of MercadoLibre (MELI.O), it can only be done as Walmart de Mexico (WALMEX.MX) announced in April that it had purchased Trafalgar, a payment app.
The Walmart division’s executives believe that the agreement will enable Cashi to reach its full potential, starting with basic transfers, fundamental withdrawals, and remittances while leaving open the possibility of loans and several financial services in the coming times.
The team’s goal is to create Mexico’s top financial platform application, which calls for ongoing investment. Senior Vice President for Financial Services from Walmex, Marcelino Herrera, confirmed this.
Even while market turbulence has fueled apprehension about newer types of financing, Walmex’s wager complements the American retailer’s efforts to establish itself in the fintech sector.
Walmex opted not to disclose the price it had paid for Trafalgar. In 2023, the business plans to invest about $210 million, or 14% of its entire investment in the Mexican and Central American outlooks; on e-commerce or technology, notably fintech.
In 2023, Walmart aims to invest about $15 billion in capital projects for automation and new sources of income, such as its advertising business, third-party seller site, and delivery.
The firm, which has its headquarters in Bentonville, Arkansas, anticipates that over the next couple years these operations will increase profitability more than its primary brick-and-mortar retail activity.
Late in 2018, Cashi launched, but solely in Walmex supermarkets, the largest private employer from Mexico. It should be possible to use it everywhere that accepts digital wallets thanks to the Trafalgar acquisition.
Herrera claimed that Cashi might benefit from Mexico’s low banking breakthrough, where fewer than half of adults have their accounts.
Every day, 5 million people visit the stores, yet the vast majority of them lack access to financial products, let alone official credit products, according to Herrera.
Even still, analysts warn that if Walmex decides to turn Cashi into a loan product, concentrating on unbanked or fully underbanked Mexicans could get it into difficulty.
Rodrigo Marimon, Moody’s analyst of many financial institutions, said the target market for this form of fintech is particularly dangerous due to previous bankruptcies at non-bank lenders Credito Real, Unifin, and AlphaCredit.
Due to past default rates, according to Jonathan Stahl, publisher of the financial and technical education websites like EduFintech, Walmex would have to face difficulties if it took on loans.
He claimed that Walmart would significantly alter its strategy in response to the credit card. It would move into a riskier area.
As shown in official data given by Brazilian bank Bradesco, the full ratio of non-performing loans (NPL) at the Mexican division of Nubank (NUN.MX), which is Latin America’s biggest fintech, was about 12.2% in February, higher than the 11.4% average for microfinance companies.
Based on Bradesco’s April report, the overall amount of consumer loans made in Nu Mexico decreased by 1.6% in February, exceeding the 0.4% fall seen across the board in the microfinance sector.
Walmart had poured a lot of money into fintech over the prior year, despite not designating it as a major investment priority.
In order to assist PhonePe, an Indian arm of fintech startup that Walmart owns a controlling stake in, diversify into new markets including insurance or wealth management, Walmart had invested an additional and surplus $200 million in it in March. More than 400 million people have signed up for PhonePe.
The store revealed plans to grow into loans and perhaps investment products last year, and it has plans to offer financial services to the 1.7 million U.S. workers and throngs of weekly customers through its majority-controlled fintech firm One.
