COF Capital One Financial Corporation

By AnnaMaria Andriotis and Liz Hoffman 

Walmart Inc. has chosen Capital One Financial Corp. as the new issuer of its store credit card, according to people familiar with the matter, ending a nearly 20-year partnership with Synchrony Financial.

Capital One will issue credit cards for the nation's largest retailer by sales. The deal covers both the credit cards that can only be used at Walmart's website and stores, as well as co-branded cards that can be used almost anywhere else, the people said.

Synchrony confirmed that its Walmart card program won't be renewed in a securities filing Thursday afternoon after the The Wall Street Journal reported on Walmart's deal with Capital One. Synchrony said its partnership with Walmart is set to expire on July 31, 2019.

Synchrony's shares closed down more than 10% Thursday at $30.

Losing Walmart is a major blow to Synchrony, the largest U.S. store-card issuer. Walmart is one of Synchrony's five biggest accounts, and it comprises about 19% of Synchrony's store-card portfolio, according to people familiar with the matter.

Earlier this year, Synchrony lost Toys "R" Us, another store-card partner, to bankruptcy, and another of its five biggest accounts, J.C. Penney Co., has been struggling for years.

The switch from Synchrony to Capital One is the biggest shake-up in retail credit-card partnerships since Costco Wholesale Corp. dumped American Express Co. and moved to Citigroup Inc. in 2016. That switch is still rippling throughout the industry: Competition between card companies has intensified, especially for blue-chip partners like Walmart, and merchants are pressing their advantage to squeeze better terms out of deals.

Synchrony said in the filing that it will sell its roughly $10 billion portfolio of Walmart credit-card balances. The company plans to use the majority of the capital freed up by the sale of the portfolio -- an estimated $2.5 billion -- to repurchase shares.

Synchrony said it expects to issue general-purpose credit cards to some of its Walmart cardholders starting next year. Cards that aren't converted can be used at Walmart for another three years, according to the filing.

Synchrony, which separated from General Electric Co. in 2014 through an initial public offering, became Walmart's exclusive credit-card issuer in 1999. The partnership was renewed several times, but it ran into trouble over the past year.

Walmart executives believed Synchrony was keeping too much of the card revenue, people familiar with the matter said. The retailer also wanted Synchrony to approve a higher percentage of applicants, the people said.

Synchrony executives, meanwhile, expressed frustration that Walmart wasn't putting enough marketing muscle behind the card, people familiar with the matter said.

This was the first time Walmart launched a formal request for bids from other card issuers, people familiar with the matter said. The retailer met earlier this year with executives from Capital One and Goldman Sachs Group Inc., which has been exploring its own entry into credit cards, according to people familiar with the matter. By the spring, it had narrowed the field to Synchrony and Capital One, the people said.

One thing working in Capital One's favor, according to people familiar with the negotiations, was Walmart's desire to move upmarket and further into digital payments and e-commerce. Facing intense competition from Amazon.com Inc., Walmart has been investing in self-checkout and mobile payments, pushing customers toward its own digital wallet, Walmart Pay.

Walmart sees Capital One as a more tech-forward partner whose broader banking capabilities could boost the retailer's digital ambitions, the people said.

Synchrony is scheduled to report quarterly earnings on Friday.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

July 26, 2018 16:47 ET (20:47 GMT)

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