nearly two decades, Synchrony FinancialSYF -3.45% was the
exclusive issuer of WalmartInc.WMT -0.25% credit cards.
The Connecticut-based bank stationed dozens of employees in Walmart’s
headquarters city of Bentonville, Ark., some of its executives lived in the
same gated community as their Walmart counterparts, and employees would hit the
same golf course and hunt quail together.
came crashing down in July, when Walmart told Synchrony it was switching to Capital
One Financial Corp. Walmart executives had grown irritated because, among other
issues, they wanted Synchrony to share more of the cards’ revenue and approve
more applicants, according to people familiar with the situation.
breakup was the latest reminder of how the once-pervasive business of store
credit cards is changing and forcing issuers like Synchrony and CitigroupInc. to rewrite their playbooks. Store
cards were already slumping as
many traditional mall retail businesses, like J.C.
PenneyCo. Inc. and Macy’sInc., lose popularity. Sears
HoldingsCorp. , which filed for bankruptcy protection
last week, was one of the first department stores to roll out its own credit
card decades ago.
those retailers shrink, banks are scrambling to compete for card agreements
with a handful of big, successful merchants like Amazon.comInc. and Costco
WholesaleCorp. And those
companies, like Walmart, are finding they can demand bigger concessions from
for example, in 2016 ended a yearslong partnership
with American Express Co. Amazon has been advocating for lower interchange
fees, which merchants pay when customers shop with credit cards.
challenge: Large banks have ramped up rewards programs for other cards, siphoning off potential customers
for store cards.
It is a
dramatic turn for an industry
that gave birth to credit cards. Store cards, which can be used only at
specific retailers, were one of the first credit cards in the U.S. After they
were introduced around the 1930s, they gained popularity as a way to shop at
department stores. Until the 1960s, they accounted for the majority of
credit-card purchase volume; last year, they accounted for less than 5%,
according to trade publication the Nilson Report.
other banks are as intertwined with a merchant as Synchrony has been with
Walmart. Synchrony is the biggest issuer of store credit cards in the U.S., and
as of June, Walmart accounted for roughly $10 billion, or 19%, of Synchrony’s
retail card balances. That includes store cards that can be used only at
Walmart and so-called co-branded cards, which carry a store’s logo but can be
used almost anywhere.
said it “worked very hard” during discussions with Walmart and
“negotiated in good faith.” The bank said it “continues to diversify into
growth areas,” noting a recent deal with PayPal HoldingsInc. and other partnerships.
we always want to renew our relationships and the loss of the Walmart program
is unfortunate, we view the situation as an outlier,” a spokeswoman said.
declined to comment on its relationship with Synchrony but said it is focused
“on delivering great value to our customers.”
Synchrony approached Walmart last fall to renew its contract, Walmart
executives balked, according to people familiar with the matter. Synchrony
revised its offer, but Walmart issued a formal request for other bids late last
year, the people said. It was the first time Walmart had done so, they said.
had already been warning signs Walmart was displeased.
had expected to get more revenue from the deal in previous years, but loan
losses cut into the amount the retailer was receiving, according to people
familiar with the matter. Losses stood at roughly 9% of outstanding balances on
Walmart cards this spring, one of the people said.
year, Walmart began offering loans from
financial technology firm Affirm Inc. to some shoppers as an alternative to
Synchrony cards. That occurred after Walmart told Synchrony it should approve
more applicants, a person familiar with the matter said. Walmart also
introduced Synchrony to fintech firm ZestFinance, whose software helps lenders
approve consumers they would have otherwise denied.
Walmart was leaning toward a breakup, Synchrony Chief Executive Margaret Keane
told investors at a conference in June that “Walmart is a good partner.”
mid-July Ms. Keane summoned more than a dozen employees to an emergency meeting
at Synchrony’s Stamford headquarters—a final attempt to save the relationship,
according to people familiar with the meeting. Employees presented options to
improve revenue for Walmart that included raising interest rates on the cards
and spending more on ads, one of the people said.
But by the time Synchrony submitted another new offer, it was too late. Walmart
had already told Capital One it wanted the bank to be its new issuer, people
familiar with the matter said.
has been rejiggering. It is continuing to build partnerships with online
merchants and is expected to announce soon that it will issue cards for
ride-sharing service Lyft Inc., according to a person familiar with the matter.
The bank is also continuing to expand medical loans for procedures like dental
work and fertility treatments, and this year it began issuing general-purpose
credit cards after a long hiatus.
the scenes, other changes are playing out. Jeff Trowbridge, who was recently in
charge of the Walmart account, has left Synchrony, people familiar with the
matter said. Mr. Trowbridge couldn’t be reached. Synchrony in September began
offering voluntary buyouts to U.S. employees, according to an email reviewed by
The Wall Street Journal.
card-issuing relationship with Synchrony will end next summer. Sam’s Club, a
Walmart unit, is still one of Synchrony’s top five retail card partners. That
partnership expires in about three years, people familiar with the matter said.
has told Capital One it looks forward to discussing Sam’s Club, a person
familiar with the matter said.
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