Should CUs fear Walmart and Capital One's new card partnership?

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A new venture from Capital One and Walmart could pose a threat to credit unions, but analysts are split on how big the impact might be.

The retailer launched two new credit card offerings last month backed by Capital One and Mastercard. One card will allow customers to make purchases wherever Mastercard is accepted, offering 2% back on restaurants and travel and 1% back everywhere else, according to a joint press release from Capital One and Walmart. This product will initially charge users annual percentage rates of 17.99% to 26.99% on purchases. The other card will only allow customers to make Walmart purchases. It will charge initially APRs of 26.99%.

Credit unions already compete with Capital One for card business, and many credit unions maintain a branch presence in Walmart locations, pitting them directly against the retailer in the fight for credit card penetration. While a 2018 study revealed a preference for credit over other payment methods, 2019 data from PSCU shows a shift back toward debit, and the latest Credit Union Trends Report from CUNA Mutual Group shows credit card growth across the industry is slowing.

The new card is the result of a July 2018 agreement that ended Walmart’s 19-year card partnership with Synchrony Financial, dating back to before the Stamford, Conn.-based company’s spinoff from General Electric. The new cards offer more enticing rewards than during the Synchrony partnership, which featured 3% back on purchases and 1% back on in-store Walmart purchases.

Interest rates on both the general-use card and the Walmart-only card are well above credit union prices, but both also carry some perks. Neither has an annual fee and both offer 5% back on purchases and 2% to 5% back on in-store Walmart purchases, depending on whether an introductory offer applies. Cardholders can redeem the rewards for travel, gift cards, Walmart purchases and statement credits.

Analysts were divided on how big a threat the new cards could be for CUs with Walmart branches.

Jeremiah Lotz, managing VP of digital experience and payments at PSCU, noted that while Walmart will be promoting those cards in some cases steps away from the credit union’s branch, he suggested these offers aren’t wildly different from others consumers see throughout any given day.

“All consumers are confronted with many relationship offers,” he said, adding “While there are going to be competing products in the market, credit unions still have an opportunity to differentiate themselves. Just focus on the member – not just the card, the member’s entire financial situation.”

Lotz also suggested the cards’ rewards features may not be a threat and could even spur more credit unions to implement a rewards program. By PSCU’s own estimation, about 40% of CUs have a points or cash-back program for rewards, and credit unions that want to effectively compete with Walmart on this front “will need to ensure their card program offerings are competitive by leveraging such a rewards program.”

Loyalty factor

Credit unions have long touted member loyalty as one key to their success, but one observer pointed out that Walmart, as one of the nation’s biggest retailers, also has a loyalty factor at play.

“The fundamental question is, is the loyalty to Walmart big enough that members will pull out that card at other locations or will they continue to use the credit union card? Which relationship is stickier?” asked Tony DeSanctis, senior director, payments practice lead for Cornerstone Advisors.

While the Walmart-specific card is less of a threat, sources suggested it could still have an impact on CUs’ portfolios.

“The track record on retailer-specific cards has been mixed at best,” said DeSanctis. “There are very few examples in which it drives significant traffic, with Target’s 5% off card being the one exception.”

One other potential benefit for credit unions is that the value proposition on the new cards weakens after the first 12 months, since users will no longer be eligible for 5% back on in-store Walmart transactions.

Regardless of whether credit unions have a branch inside a Walmart location, PSCU’s Lotz said there is plenty the industry can do to compete, including focusing on the member experience.

Walmart and Capital One, he said, “are talking about the visual experience, getting through the line, using Walmart Pay, and an easier checkout process online. Again, credit unions have an opportunity to provide similar experiences that are not just specific to one merchant. They can push their cards to digital wallets. On cards, they can offer travel notifications, digital replacement for lost/stolen car, offer insight into how payments are being processed. Credit unions can give that experience across the entire relationship.”

Those behind the new card, he added, are “counting on loyalty, so credit unions need to compete there … they just need to remind consumers they are competitive.”

At least one credit union – and the world’s largest CU – so far isn’t sweating the new deal. Justin Zeidman, head of credit card products at Navy Federal Credit Union, said, "While we continue to monitor the competitive credit card landscape, our focus is on providing our members with products and services that fit their unique needs and foster financial success."

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Credit cards Loyalty and rewards Consumer banking Retail industry Capital One Walmart Mastercard Synchrony Navy FCU