Capital One Accuses Walmart Of Scrapping Credit Card Deal To Fly Solo

May 11, 2023
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The US retail giant is seeking to end a deal with Capital One citing bad customer service on the bank’s side, but Capital One argues the real motive is linked to Walmart’s strategy to build its own financial super app.

The US retail giant is seeking to end a deal with Capital One citing bad customer service on the bank’s side, but Capital One argues the real motive is linked to Walmart’s strategy to build its own financial super app.

Capital One, the issuer of Walmart-branded credit cards, alleges that the retailer is seeking to end their partnership because Walmart no longer likes the economic terms it agreed to and wants to move the credit card business to its recently acquired fintech company.

This argument came in response to a lawsuit filed by Walmart which is seeking to terminate a five-year-old deal with Capital One, accusing the latter of failing to meet numerous critical customer service standards, such as timely payment processing and the replacement cards within five business days.

In one specific example, Walmart says last July Capital One processed only 55 percent of the transactions within one day despite promising to process at least 97 percent of them within this timeframe.

The retail giant wants to end the contract, which it says allows it to do so if Capital One fails to meet a critical standard five or more times in a year.

In its response, Capital One alleges that Walmart simply changed its mind and is only trying to walk back from its contract because it wants to move its credit card business to ONE, Walmart’s new fintech affiliate.

ONE was first announced last January when the retailer acquired a majority stake in earned wage access platform Even and direct-to-consumer fintech ONE. Through these acquisitions, the retail giant wants to create “an all-in-one financial services app” for consumers to “holistically manage their finances in one place”.

Capital One now argues that Walmart is using court proceedings to end a deal that it no longer finds lucrative enough to move the progamme to ONE.

“This suit is the culmination of Walmart’s years of bemoaning the financial terms of the deal it struck and of repeated failures to live up to its contractual obligations in favour of ventures it believed more profitable to Walmart,” Capital One writes in the document seen by VIXIO.

“At bottom, this case has nothing to do with customer service issues and critical [service level agreement] misses. Instead, this dispute is entirely about Walmart’s desire to void its existing contractual obligations and strike another deal more to its liking,” the bank says.

The bank says that Walmart acknowledged that the team which negotiated the agreement on behalf of the retailer “didn’t understand” credit cards and negotiated a “bad deal” for Walmart.

It also points out that Walmart failed to market the credit card programme despite its obligation to do so. In its response, Capital One asks for compensation from Walmart for this failure and urges the court to declare that Walmart has no right to terminate the agreement early.

Walmart’s journey from a failed banking licence to super app

As payments is increasingly moving away from traditional banks towards alternative fintech providers, many large merchants are trying to tap into these opportunities and even develop their own payments and financial solutions.

Such a move can make the customer experience smoother, allow them to realise new revenue opportunities and potentially save on credit and debit card interchange fees.

Through various partnerships and the ONE fintech joint venture, Walmart now offers a wide range of financial services such as money transfers, digital payment platforms, bill payment, money orders, cheque cashing, prepaid access, installment lending and earned wage access.

In September, Bloomberg reported that Walmart is set to start offering checking accounts to thousands of its workers and a small portion of its online customers as part of an initial beta test of the new ONE service.

Walmart efforts to increase the suite of its financial products and services comes as its management says there is a strong demand from consumers for more bank-like services at Walmart.

“Customers have made it clear that they want more from us in the financial services arena,” John Furner, president and CEO, Walmart US, said last year.

“Creating a simple, personalised app that allows users to manage their money in one place is the natural next step toward fulfilling that,” he added.

Additionally, in recent years, Walmart has heavily invested in omni-channel and e-commerce innovation.

As part of this initiative, it acquired a majority stake in India’s e-commerce giant Flipkart and its digital payment platform PhonePe, India’s most valuable fintech start-up that processed around 46.8 percent of all Universal Payments Interface (UPI) transactions in April.

Nonetheless, Walmart’s journey to bring financial products in-house has not always been plain sailing.

In a less successful attempt, in 2005, Walmart sought to obtain a special banking licence called an “industrial loan company” charter which faced such a public backlash that policymakers put a moratorium that effectively halted those charters for more than a decade.

In 2012, Walmart was also part of an ambitious plan by a consortium of retailers to build a mobile payment solution, which was to be called CurrentC.

Although testing was ongoing in 2015, the programme was suddenly stopped in 2016 and the technology developed by the consortium was later purchased by J.P. Morgan for its Chase Pay system.

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