Commentary

Walmart May Find Itself In Sync With Capital One Credit Cards

Walmart is shopping for a better deal on its credit-card partnership that is currently with Synchrony Financial but may move — in whole or part — to Capital One as the retailer looks specifically to expand Walmart Pay, its budding mobile payments platform.

Sources tell Bloomberg’s Jennifer Surane, who broke the story yesterday, that the Bentonville, Ark.-based retailer has winnowed down the field for its huge business to bids from the two lenders. None of the parties involved had anything to say about the matter, however.

“Co-brand and private label credit cards are a lucrative business for banks and retailers seeking to monetize a cardholder’s loyalty to a certain brand or store. The Walmart card is the largest program in the U.S. up for renegotiation between this year and next year, according to analysts at Susquehanna Financial Group,” Surane writes.

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“There’s a lot of appetite among banks in this area,” Susquehanna analyst Jamie Friedman, tells Surane, who points out “the lenders attach ‘scarcity value’ to strong retailers such as Walmart, which is known for having a deep understanding of customers’ buying habits.”

“Walmart and Synchrony have encountered challenges on several fronts of late. Synchrony executives have expressed frustration that Walmart isn’t putting enough marketing muscle behind the cards and wants more in-store promotion, people familiar with the matter said. Walmart executives believe Synchrony is keeping too much of the cards’ revenue, the people said. The executives aired those concerns in a meeting with Synchrony’s board last year, one person said,” AnnaMaria Andriotis and Liz Hoffman write for the Wall Street Journal.

“One option that Walmart has looked at is whether to keep its credit card that can only be used at its stores with Synchrony and move the co-branded card to Capital One, people familiar with the discussions said,” they continue.

“Walmart has been investing in self-checkout and mobile payments, pushing customers toward its own digital wallet, Walmart Pay. It sees Capital One as a more tech-forward partner whose broader banking capabilities could aid Walmart’s digital ambitions, some of the people said,” Andriotis and Hoffman also report.

“Walmart Pay has been out in wide release for a little over a year — and in that time, it has made some pretty notable strides. According to the PYMNTS/InfoScout data, in a little under eight months, Walmart Pay ranked as the third most frequently used mobile wallet in the U.S. — handily edging out much longer-term participants in the mobile wallet wars, such as Android Pay. The same data noted that among consumers who had used Walmart Pay, the majority found it easier to use, faster at checkout and more convenient overall than swiping a card,” according to an unsigned story posted to PYMNTS.com.

“The credit-card partnership is another way Walmart could compete against Amazon.com Inc., which has deals with JPMorgan Chase & Co. and Synchrony for its co-brand and private-label credit cards. Walmart isn’t likely to offer rich cash-back rewards on its card — that would go against the company’s ethos of offering low prices to everyone — but it could use the card to drive more loyalty to certain businesses such as grocery, the people said,” Bloomberg’s Surane points out.

Disclosure of Walmart’s possible split after a nearly 20-year relationship was obviously not good news for Stamford, Conn.-based Synchrony Financial. Its shares were “getting shredded on Thursday” after the news reports were published, according to Financial Times’ Pan Kwan Yuk. It closed down 5.29% on the day but rose slightly in after-hours trading, according to MarketWatch.

“The last time such a big portfolio changed hands was when Citi & Visa teamed up to purchase the Costco portfolio from American Express. Synchrony just recently spent $7 billion purchasing consumer credit receivables from PayPal and extending that co-branded relationship until 2028,” points out William Charles  on the Doctor of Credit website.

There was a flurry of stories about Costco’s rocky transition from AmEx cards to the Citi Visa a couple of years ago. But, like well-managed consumer debt, those problems seem to have diminished over time.

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