Walmart is considering its options after leaving Capital One

The relationship that made Capital One the exclusive issuer of Walmart credit cards officially ended last Friday. The partnership began in 2018, and Capital One became the exclusive issuer in 2019.

A breakup seemed inevitable since Walmart filed a lawsuit against Capital One in April 2023. The retail giant alleged a number of breaches of the partnership agreement, including: delays in posting transactions to cardholders’ accounts and failure to timely replace lost cards. In March this year, a judge ruled that Capital One failed to provide the required level of customer service it agreed to, giving Walmart the right to end the relationship.

According to a statement from Capital One issued earlier this month, the bank “terminated the agreement under which Capital One became the exclusive issuer of Walmart consumer credit cards.” The key word is “exclusive issuer,” so the announcement doesn’t necessarily mean that Capital One will no longer issue co-branded cards with Walmart. The statement also indicated that Capital One will retain ownership and operation, with a further announcement expected in several months.

“It will be interesting to see Walmart’s next steps,” said Brian Riley, chief lending officer and co-head of payments at Javelin Strategy & Research. “They have been experimenting with their fintech One and they are also using buy now, pay later.” Collaboration has proven to be a challenge not only with Capital One, but also with their previous partner, Synchrony.”

Walmart’s 20-year relationship with Synchrony Financial also ended in a flurry of lawsuits. Walmart sued Synchrony for $800 million in 2019, claiming the company refuses to insure weak credit card accounts. The lawsuit was later dropped, but the relationship was severed. Synchrony has managed to maintain its status as an issuer of Sam’s Club, a subsidiary of Walmart.

Walmart’s future options

Where does Walmart go from here? There are several alternatives.

Walmart may partner with another issuer, although some issuers may be hesitant to build a co-branded partnership after the retailer ends the second relationship. However, with approximately 255 million customers and members visiting Walmart stores every week, this relationship will be attractive to many issuers.

Walmart may also turn to its majority fintech One. If such a change occurs, the company must decide which company will bear the risk on its balance sheet.

“Decades ago, retailers often supported their credit card receivables, but when the economy fell into recession, balance sheet stress typically required the company to sell the receivables,” Riley said. “However, the retailer’s recent move to BNPL may indicate that it is willing to add some balance sheet risk.”

A third option would be for Walmart and Capital One to mend their relationship, although this is unlikely given the legal proceedings.