We heard a story like this one back in 2019, when Walmart sued Synchrony on their co-brand card. Remember when Walmart sued Synchrony on their credit card, claiming that Synchrony was refusing to underwrite weak credit card accounts? The WSJ reported that Walmart filed an $800 million lawsuit against Synchrony, claiming lost revenue by Synchrony’s underwriting standards. The suit was later dropped, around the time Walmart shifted their relationship to Capital One.
Now if you have been in the credit card business for a while, you’d know that Capital One works low and mid-range FICO Scores better than most. They have a solid collection infrastructure, leading edge analytics, and they know how to price risky credit card accounts.
The Capital One-Walmart did not last long, in fact, the WSJ reported that Walmart is now seeking to sue Capital One, to end the co-brand partnership early. According to the article, “Walmart’s lawsuit, which was filed this week, alleges that Capital One didn’t meet certain terms of the card partnership contract. The case was filed in the Southern District of New York.”
This time, the claim is different. Says the WSJ: “Walmart alleged that Capital One didn’t provide the customer service it was obligated to offer, such as replacing lost cards promptly. It also alleged that Capital One didn’t promptly post some transactions and payments to cardholders’ accounts.”
And Capital One is not taking the suit lightly. “The spokesman said Walmart’s lawsuit “is an attempt to renegotiate the economic terms of the partnership it agreed to just a few years ago or end the deal early.” He said that Capital One “will vigorously protect our contractual rights in court.”
It makes you wonder how much risk Walmart wants to assume. Their U.S. attempt at banking was lackluster, but it is evident that Walmart wants to get into the lending business itself. In December 2022, CNBC reported that Walmart is backing a fintech to get into BNPL lending. Walmart is the “majority owner of ‘One,’ the new venture led by Goldman Sachs veterans.
Those veterans come from GS’ floundering card business. Remember, Goldman is retreating from the consumer business, so do not be too impressed with Walmart’s retail launch.
But Walmart’s timing is interesting in their pursuit of Capital One. The Synchrony playbook is on the bench, and the timing, about 100 days since the Walmart-One venture, seems “sub-optimal” as we say in the credit policy office.
Where this might go is interesting. Does it set a precedent for co-brand partners to use the legal system if they want to unravel a co-brand? Would Apple and Goldman Sachs be next?
For more on the co-brand industry, Ben Danner’s excellent report on one of the biggest drivers of credit card volumes.
Overview byBrian Riley, Director of Credit /Co-Head of Payments at Javelin Strategy & Research.