Next for Wal-Mart Shoppers: Installment Loans?

Summary

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WSJ Your Money Briefing

Episode: Next for Wal-Mart Shoppers: Installment Loans?
Date: August 23, 2017
Host: Charlie Turner
Guest: AnnaMaria Andriotis, WSJ Credit Card Reporter

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Episode Overview

This episode tackles Walmart’s potential partnership with the fintech company Affirm to offer installment loans to customers. The discussion explores what this means for shoppers—especially those with limited credit histories—and how this move could disrupt the existing Walmart-Synchrony Financial credit card relationship. The conversation covers lending details, impacts on consumer choice, and the wider context in the financial industry.

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Key Discussion Points & Insights

1. What’s Happening: Walmart and Affirm Talks

• Affirm, an upstart financing firm, is in negotiations with Walmart to offer installment loans at select stores and online.
• This would challenge Synchrony Financial, Walmart’s exclusive U.S. credit card issuer.
• “This would be a pilot program that would start as soon as this fall, right?” (Charlie Turner, [00:38])
• “The two companies are in discussion and are looking... at potentially putting together this deal.” (AnnaMaria Andriotis, [01:14])

2. Who Would Use These Loans?

• Focus would be on larger purchases ($200+), for example, tires at Walmart.
• Includes people with limited or no credit history, as well as those with good credit.
• Notable Quote:
  “People who have limited credit histories and as a result have low credit scores. But it's not all of the people that they'd be targeting.” (Anamaria Andreotis, [02:20])
• The ability for more shoppers to be approved is key, as Walmart wants more approvals to drive loyalty and increased sales.
• “With retailers, the more people who get approved for in store financing... typically results in more sales, more loyalty.” (Anamaria Andreotis, [02:58])

3. Consumer Choice: Credit Cards vs. Installment Loans

• Introduction of Affirm would mean eligible Walmart shoppers could choose between Synchrony credit cards or Affirm installment loans.

• Installment loans: fixed repayment periods, no risk of carrying an endless balance.

• Credit cards: variable terms, possible to carry a balance indefinitely.

• Notable Quote:
  “You're moving from a situation where Synchrony has been the only provider of financing, Walmart financing to its shoppers... to shoppers being able... to choose between two lenders, Synchrony and Affirm.” (Anamaria Andreotis, [04:19])

4. Key Loan Differences

| Feature | Synchrony Walmart Credit Card | Affirm Installment Loan | |--------------------------|--------------------------------------|------------------------------| | Late Fees | Up to $38 | None | | Interest Rates | Variable, ~18%–24% | Fixed, 10%–30% (based on creditworthiness) | | Repayment Structure | Revolving, can carry a balance | Fixed term, set payoff date |

• “Synchrony cards do have late fees... Affirm does not charge late fees.” (Anamaria Andreotis, [05:11])
• “Affirm’s installment loans have fixed rates that tend to range between 10% to 30%... Synchrony’s Walmart credit cards have variable interest rates and run from about 18 to 24%.” (Anamaria Andreotis, [05:39])

5. Impact on the Market and Why It Matters

• The entrance of Affirm could disrupt the dominance of Synchrony as the sole provider for Walmart’s in-store financing.

• The number of store card charge-offs—instances where debt is deemed uncollectible—is rising, which is a concern for lenders.

• Retailers want more approvals to boost customer loyalty and sales, but lenders must balance risk.

• Notable Quote:
  “The credit card industry, in particular the store credit card market, is dealing with several issues. I guess the biggest one being that charge offs—card losses essentially—are up substantially...” (Anamaria Andreotis, [06:57])

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Notable Quotes & Memorable Moments

• On the strategic importance of wider loan approvals:
  “Walmart is interested in a firm’s offer essentially of more loan approvals.” (Anamaria Andreotis, [02:54])
• On product differentiation:
  “The affirmed loans... have a sort of fixed repayment period. And... the monthly payments are divided up so that by the tenth month or the twelfth month, whenever that loan is set to be paid off in full, the borrower no longer has a balance.” (Anamaria Andreotis, [05:39])
• On the market shift:
  “You have this sort of upstart lender getting into the mix and potentially causing some disruption there.” (Anamaria Andreotis, [04:19])
• Balancing merchant and lender needs:
  “The stores obviously want as many consumers to get approved as possible... The card issuers have to manage that with, you know, not doing irresponsible lending.” (Anamaria Andreotis, [07:29])

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Timestamps for Important Segments

• [01:14] — Overview of the proposed Walmart-Affirm deal and who it would serve.
• [02:20] — Discussion on limited credit borrowers and Walmart’s motivation.
• [04:19] — Implications of bringing in another lender; credit cards vs. installment loans.
• [05:11] — Fee and interest rate comparison; product structure differences.
• [06:57] — Market concerns: credit card losses, merchant vs. lender priorities.

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Episode Takeaways

• Walmart is considering expanding financing choices for its shoppers via Affirm, especially for those underserved by traditional credit cards.
• Fixed-term installment loans could attract borrowers who want more predictable, time-limited debt.
• The growing challenge for retailers and lenders: providing access while managing rising bad debts.
• If implemented, this move would add competitive pressure in retail financing and give Walmart shoppers new options to manage larger purchases.

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Transcript

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[Anamaria Andreotis]

this Is yous Money Matters from the Wall Street Journal.

[Charlie Turner]

Welcome to youo Money Matters. I'm Charlie Turner in New York. The Wall Street Journal says upstart financing firm Affirm is in talks to offer installment loans to some Walmart shoppers. This move would provide stiff competition for Synchrony Financial, the exclusive issuer of U.S. credit cards for the world's largest retailer. Let's talk about this possible deal with Wall Street Journal credit card reporter Ann Andreotis. And first, we should stress that the tour in talks and a deal may or may not be finalized by the time our listeners hear this. Anamaria this would be a pilot program that would start as soon as this fall, right?

[Anamaria Andreotis]

Correct. So the two companies are in discussion and are looking basically at potentially putting together this deal where a firm would be offering a financing option to some Walmart customers. This would be both online and some store locations and as you said, could come to fruition as soon as this fall.

[Charlie Turner]

And a firm's loans would be focused on larger purchases like tires at Walmart stores.

[Anamaria Andreotis]

Right. So what we're talking about for the most part would be purchases of over $200. And one of the things that would result if this deal does actually materialize is that you'd have some shoppers that would be looking choosing between two financing options, essentially from Walmart synchrony credit cards and the Affirm installment loan.

[Charlie Turner]

These loans would be geared toward people with limited credit histories. Isn't that the idea?

[Anamaria Andreotis]

Basically, that is a big group of people that these loans would be targeting, people who have limited credit histories and as a result have low credit scores. But it's not all of the people that they'd be targeting. So we're talking about a mix of people where it could be people with full credit reports with good credit standings and those who have a very thin record of previously managing debt. And so why this is important is because essentially what's going on here is that Affirm And Walmart have been in discussions for several years. This dates back to 2014 when those discussions began. And what my sources are telling me is that basically what's been going on is that Walmart is interested in a firm's offer essentially of more loan approvals. More approvals. Being able to approve more people that shop at Walmart for financing. That's important because in general with retailers, the more people who get approved for in store financing, whether it's credit cards, installment loans, typically results in more sales, more loyalty, those people shopping at that store more.

[Charlie Turner]

So it's a good way for Walmart and other retailers to expand their customer basis.

[Anamaria Andreotis]

Correct. And so one pool of people that could be impacted here would be people with limited credit reports. These people tend to have low credit scores and might not be getting approved by Synchrony, but could be getting approved by a firm.

[Charlie Turner]

I'm speaking with Anna Maria Andreotis of the Wall Street Journal and you're listening to youo Money Matters. Thanks for listening, everyone. So it looks like it presents Walmart shoppers, Anna Maria, with a choice of making a purchase with a synchrony credit card or getting an affirm installment loan whose payments could be spread out over a longer period of time.

[Anamaria Andreotis]

Right. And also the reason why this is important is because if you just look at the history of synchrony and Walmart, Synchrony is the largest US store card issuer. You're talking about two giants here in the retail space and in the credit card store issuance space. And you have this sort of upstart lender getting into the mix and potentially causing some disruption there. Meaning that you're moving from a situation where synchrony has been the only provider of financing, Walmart financing to its shoppers for many years, to shoppers being able, some shoppers being able to choose between two lenders, synchrony and affirm.

[Charlie Turner]

Right. And a firm would not charge a late fee for late payments, is that right?

[Anamaria Andreotis]

Well, a firm does not charge late fees. And so that gets us into looking at the differences in terms of the, you know, how the terms between these products vary for consumers. So synchrony cards do have late fees. They run up to around, they run up to $38. A firm does not charge late fees. Then when we look at the,

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the

[Anamaria Andreotis]

interest rates essentially affirms installment loans have fixed rates that tend to range between 10% to 30% depending in part on people's creditworthiness. While Synchrony's Walmart credit cards have variable interest rates and run from about 18 to 24%. So there are differences here. The affirmed loans, what their loans are known for is what installment loans in general are known for, which is that installment loans have a sort of fixed repayment period. And what happens is the monthly payments are divided up so that by the 10th month or the 12th month, whenever that loan is set to be paid off in full, the borrower no longer has a balance. Of course, on the credit card side, you could be carrying a balance forever depending on how you manage things. So the products are different and could appeal to different borrowers. But certainly what is interesting here is the possibility of this other lender getting into the mix with Walmart shoppers.

[Charlie Turner]

Again, we should stress, the two are in talks, Affirm and Walmart. It seems like this would be viewed as a credible alternative to a credit card, especially when credit card charge offs are rising.

[Anamaria Andreotis]

So the credit card industry, in particular the store credit card market, is dealing with several issues. I guess the biggest one being that charge offscard losses essentially are up substantially from where they were a year prior. That's true for synchrony, but that's also true for a lot of the other store card issuers, companies like Citi's store card division, as well as this other company called Alliance Data Systems. So yes, losses are on the rise. And when you look at kind of the relationship between these store card issuers and the merchants that they have these partnerships with, it's interesting because the stores obviously want as many consumers to get approved as possible, responsible to encourage loyalty and more spending. The card issuers have to manage that with, you know, not doing irresponsible lending. So it's an interesting balance and, you know, we'll see what ends up playing out.

[Charlie Turner]

Wall Street Journal reporter Anamaria Andreotis, thank you very much for joining us.

[Anamaria Andreotis]

Thank you.

[Charlie Turner]

And that's yous Money Matters. I'm Charlie Turner at the Wall Street Journal.

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