Dive Brief:

• Capital One Financial, one of the largest U.S. bank credit card issuers, and retail giant Walmart said in a joint press release Friday that they’re parting ways.
• The partners didn’t say when their break-up will affect the services provided to card holders under the rewards program they created in 2019. “Until informed otherwise, cardholders can also continue to use their Capital One Walmart Rewards,” wherever Mastercard is accepted, as well as the Walmart Rewards card for their Walmart purchases, the release said.
• “While Capital One and Walmart have ended their card partnership, nothing changes today for cardholders – cardholders can continue to earn and redeem rewards, and previously accrued rewards will retain their value,” the release said.

Dive Insight:

Walmart was given permission by a federal judge in March to end its credit card partnership with Capital One because of customer service issues, the judge ruled.

The agreement terms between the two “clearly dictate that Capital One’s repeated customer service failures entitled Walmart to invoke the Termination Right and terminate the parties’ ongoing partnership,”  U.S. District Court Judge Katherine Polk Failla wrote in a decision.

Walmart sued Capital One in April 2023, seeking to end its credit card partnership with the McLean, Virginia-based lender. Walmart alleged Capital One repeatedly failed to meet several contractual obligations of the card partnership, including promptly issuing replacement cards to customers as well as processing their payments and posting transactions to accounts in a timely manner.

When asked for further information about the terms of the separation announced Friday, a Capital One spokesperson suggested current Walmart cardholders may receive other Capital One cards. “The parties determined that the best path forward for our customers is to end the current partnership and convert existing eligible Walmart Card customers to one of Capital One’s flagship branded rewards products,” the Capital One spokesperson by email. “There are no actions customers need to take today; Capital One will communicate in advance of any upcoming changes to customer account features or functionality.”

The Capital One spokesperson also referred to a filing by the bank with the Securities and Exchange Commission. That filing noted that Capital One retains ownership and servicing rights for the $8.5 billion card loan portfolio, noting about 40% of the loans were originated and underwritten by the bank.

Under the now defunct agreement with Walmart, there was a revenue and loss sharing arrangement between the two companies that Capital One pointed out as affecting its financial results. 

“If the loss sharing arrangement had not been in place for the first quarter of 2024, the Domestic Card net charge-off rate would have been approximately 45 basis points higher and our allowance for credit losses would have been approximately $850 million higher,” the bank said in the 8-K filing. “If the revenue sharing arrangement had not been in place for the first quarter of 2024, Domestic Card revenue margin would have been approximately 45 basis points higher.”

The break-up also follows the announcement by Capital One earlier this year that it would seek to acquire the card company Riverwoods, Illinois-based Discover Financial Services. If completed, the deal would put Capital One ahead of JPMorgan Chase as the largest credit card issuer in the U.S.

A spokesperson for Walmart declined to comment beyond the press release.