Walmart has earned the right to end its credit card partnership with Capital One early after the bank failed to fulfill its end of the deal. A U.S. District Judge in Manhattan said that the bank did not provide the requisite level of customer service it had attested to in a 2018 agreement that made Capital One the exclusive issuer of Walmart-branded credit cards in the United States.
At first, the partnership seemed like a well-suited match, given Capital One’s reputation for serving customers with low to mid-range FICO scores, aligning well with Walmart’s customer base.
However, Walmart filed a suit against Capital One in April 2023, alleging various breaches of the partnership contract. Complaints included delays in posting transactions to cardholders’ accounts and failures to promptly replace lost cards.
Severing Ties with Synchrony
This isn’t the first time that Walmart has faced issues with a credit card issuer. Prior to its partnership with Capital One, Walmart had a nearly 20-year-long relationship with Sychrony as its issuer. That alliance ended in a lawsuit (although it was later dropped) that alleged that Synchrony’s low underwriting standards had damaged it’s bottom line.
“Walmart’s issues with their cobrand partners are unusual in the payments world,” said Brian Riley, Director of Credit & Co-Head of Payments at Javelin Strategy & Research. “First, Walmart split from Synchrony for credit approval strategies, and now there is a pending divorce with Capital One, another top card issuer.”
Ready to Go At It Alone?
The next question for Walmart is whether it will be able to handle its own financial issues. Many of its stores offer a money center where customers can access banking services, including money transfers. Walmart is also the majority owner of One, a venture led by Goldman Sachs veterans, which was established to manage its buy now, pay later services. As of December 2023, more than 4,500 Walmart stores began offering BNPL services at their self-checkout kiosks.
“Walmart’s new proprietary product, One, will be interesting to watch,” said Riley. “Will they lend like a real lender? Or will they be able to work with high charge offs? With their recent claims about Capital One, it will be interesting to see what their servicing standards will be.”