COF Capital One Financial Corporation

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)

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