When Walmart ventured into credit cards in 2018, it partnered with Capital One, one of America’s largest banks. They forged an exclusive long-term agreement designed to enable Walmart to offer cutting-edge digital credit card products to its customers, while Capital One gained access to Walmart’s vast retail market without competition.
However, the partnership soured by 2023 when Capital One breached contract terms related to customer service standards, including charge posting times for a specified percentage of cards. Last month, Walmart terminated the exclusive agreement, citing multiple customer service issues in court documents. Despite this, Capital One retained $8.5 billion in credit card balances and charges customers between 19.48% and 29.99% for overdue Walmart Rewards purchases.
Walmart, ranked No. 1 on this year’s Fortune 500 list, is now likely exploring new partners, with potential candidates including Synchrony Bank from Stamford, Connecticut, Barclays from London, and Coastal Community Bank (CCB) from Washington State, according to fintech bank researcher Tim Switzer of Keefe, Bruyette & Woods. Switzer noted, “They could choose any one of those, and it’d be exclusive, or they could choose all three.”
Assessing the competitors:
Synchrony Bank, a subsidiary of Synchrony Financial, specializes in retail credit cards and recently acquired Ally Lending, adding $2.2 billion in loan receivables. Despite a recent slowdown in nonprime borrower spending, Synchrony offers credit cards for Walgreens and Walmart’s sister company Sam’s Club.
Barclays approved a plan to focus on consumer lending in February 2023 and has since sold $1 billion in high-risk credit card receivables. Barclays has launched the Xbox Mastercard for U.S. consumers and is in discussions with GM to acquire $2 billion in card balances from Goldman Sachs. However, Barclays might avoid subprime credit cards.
CCB was founded in 1997 and quickly embraced banking as a service, assisting over 40 clients with banking license and regulatory compliance needs. Despite losing 10 clients over 18 months, CCB’s stock has grown 366% since March 2020. Switzer believes CCB’s fintech partner One could potentially become Walmart’s exclusive credit card provider or one of several providers.
The dark horse option is Green Dot Corp., a holding company of Green Dot Bank, which has partnerships with Walmart, Apple, and Uber. Known for its pre-paid cards sold at Walmart, Green Dot has faced challenges, including setting aside $20 million for potential liability and a significant drop in stock value from $88.82 in 2018 to $9.12. However, recent leadership changes and a new direct-to-consumer product could position Green Dot to capture some of Capital One’s market share.
Walmart’s initial foray into the financial sector began in 2005 with an application to become a bank to reduce interchange fees, which last year totaled $72 billion globally. Brett Rabatin of Hovde Group estimates Walmart could be paying up to $500 million in these fees.
Walmart did not comment on this story, but referred to a statement on Capital One’s website indicating that further information will be provided to Walmart credit card holders in the coming months. CCB CFO Joel Edwards cited non-disclosure agreements, and Green Dot declined to speculate on the implications of the end of Capital One’s exclusive deal. Synchrony Bank did not respond to requests for comment, and Barclays declined to comment.
