Walmart Taps Capital One for Store Cards, Dealing Major Blow to Synchrony -- 3rd Update
July 26 2018 - 6:02PM
Dow Jones News
By AnnaMaria Andriotis and Liz Hoffman
Walmart Inc. has chosen Capital One Financial Corp. as the new
issuer of its store credit cards, ending a nearly 20-year
partnership with Synchrony Financial, the companies confirmed
Thursday.
Capital One will become the exclusive issuer of credit cards for
the nation's largest retailer by sales. The deal covers both the
credit cards that can only be used at Walmart's website and stores,
as well as co-branded cards that can be used almost anywhere else,
the companies said.
The move was a major blow to Synchrony; the company's shares
fell more than 10% Thursday after The Wall Street Journal reported
on Walmart's decision.
Synchrony confirmed in a securities filing following the
Journal's story that its Walmart card program wouldn't be renewed.
Synchrony said its partnership with Walmart is set to expire on
July 31, 2019.
Synchrony, which is due to report earnings Friday morning, is
currently the largest U.S. store-card issuer. Walmart is one of
Synchrony's five biggest accounts, and it comprises about 19% of
Synchrony's store-card portfolio, according to people familiar with
the matter.
Earlier this year, Synchrony lost Toys "R" Us, another
store-card partner, to bankruptcy, and another of its five biggest
accounts, J.C. Penney Co., has been struggling for years.
The switch from Synchrony to Capital One is the biggest shake-up
in retail credit-card partnerships since Costco Wholesale Corp.
dumped American Express Co. and moved to Citigroup Inc. in 2016.
That switch is still rippling throughout the industry: Competition
between card companies has intensified, especially for blue-chip
partners like Walmart, and merchants are pressing their advantage
to squeeze better terms out of deals.
Synchrony said in the filing that it is weighing two options. It
could sell its roughly $10 billion portfolio of Walmart credit-card
balances. The company could then use the majority of the capital
freed up by the sale -- an estimated $2.5 billion -- to repurchase
shares.
Alternatively, Synchrony said it could issue general-purpose
credit cards to some of its Walmart cardholders starting next year.
Cards that aren't converted can be used at Walmart for another
three years, according to the filing.
Synchrony, which separated from General Electric Co. in 2014
through an initial public offering, became Walmart's exclusive
credit-card issuer in 1999. The partnership was renewed several
times, but it ran into trouble over the past year.
Walmart executives believed Synchrony was keeping too much of
the card revenue, people familiar with the matter said. The
retailer also wanted Synchrony to approve a higher percentage of
applicants, the people said.
Synchrony executives, meanwhile, expressed frustration that
Walmart wasn't putting enough marketing muscle behind the card,
people familiar with the matter said.
This was the first time Walmart launched a formal request for
bids from other card issuers, people familiar with the matter said.
The retailer met earlier this year with executives from Capital One
and Goldman Sachs Group Inc., which has been exploring its own
entry into credit cards, according to people familiar with the
matter. By the spring, it had narrowed the field to Synchrony and
Capital One, the people said.
One thing working in Capital One's favor, according to people
familiar with the negotiations, was Walmart's desire to move
upmarket and further into digital payments and e-commerce. Facing
intense competition from Amazon.com Inc., Walmart has been
investing in self-checkout and mobile payments, pushing customers
toward its own digital wallet, Walmart Pay.
Walmart sees Capital One as a more tech-forward partner whose
broader banking capabilities could boost the retailer's digital
ambitions, the people said.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and
Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
July 26, 2018 17:47 ET (21:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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