UPDATE: January 24, 2019: Walmart has agreed to dismiss its $800 million lawsuit against Synchrony, according to a press release issued Wednesday from the financial services company. It also announced an extension of its partnership with Sam's Club on financing options through store-branded credit cards.
Walmart on Thursday filed a lawsuit against Synchrony Financial, alleging the credit card issuer breached its contract and financially harmed Walmart. The big-box retailer is seeking $800 million in damages, according to the heavily redacted lawsuit.
- Synchrony Financial, the largest retail store credit card issuer, has partnered with Walmart since 1999. That came to a close this July, when Walmart picked Capital One as its new primary credit card partner. A Walmart spokesman told Retail Dive in an email that the company had made attempts to resolve the business dispute, "however, Synchrony has failed to take responsibility for its actions," he said. "We fully expect Synchrony to manufacture counterclaims in an effort to shift the focus away from its own conduct."
- In an email to Retail Dive, Synchrony Financial called the lawsuit "nothing more than an attempt by Walmart to exert leverage and avoid the contractually defined process for valuing the loan portfolio that Synchrony has serviced on behalf of millions of Walmart customers for the last 20 years." The company clarified that it applied the same underwriting and decision-making process to Walmart as it does all portfolios, but that poor credit performance was as a result of "the credit distribution of the applicants, the relative performance of Walmart cardholders and Walmart's failure to promote the program."
The nearly two-decade partnership between Walmart and Synchrony Financial came crashing down in July when Walmart picked Capital One as its new primary credit card partner.
But the long-standing relationship has been on the rocks for at least a year, according to The Wall Street Journal, which broke initial reports in July that Walmart had moved on to a new card issuer. According to reports about the break, Walmart complained that Synchrony Financial's transaction fees were too high and that it didn't approve enough card applications. On the other side, Synchrony Financial reportedly felt Walmart didn't put enough marketing energy behind its card offerings. Disputes aside, Walmart still made up about $10 billion of Synchrony retail credit card business as of June, the Journal reported.
Under the spotlight in this new lawsuit are two types of cards: Walmart cards and co-branded cards that use the Walmart name and can be used at other retailers. Sources familiar with the matter told the Journal that loan losses on Walmart's proprietary cards rose when Synchrony shifted some customers to co-branded cards between 2011 and 2016.
Walmart is walking away from Synchrony and will begin issuing cards through Capital One in August 2019. Increasingly a tech company, Capital One may present Walmart with more forward-thinking payment technologies. That may be important to the retail giant as it continues to invest in mobile payments, self-checkout and other finance options. And starting fresh without the baggage of a two-decade partnership may allow Walmart to experiment with new credit card offerings.
In its July announcement that it was partnering with Capital One, Walmart implied that the new relationship presented greater advantages and aligned with the retailer's own strategy and goals. The retailer said in a press release at the time that the new deal, "combines Walmart's size, scale and leadership in omni-channel retailing with Capital One's long-standing position as a technology leader within the retail financial services market. Leveraging their respective technology platforms and individual capabilities, Walmart and Capital One intend to offer highly innovative, digitally-enabled credit card products that deliver great value to customers and an exceptional cardholder experience."