Capital One set to launch Walmart credit cards next week

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Capital One Financial and Walmart are set to launch two new credit cards that will offer consumers 2% to 5% back on Walmart purchases.

The companies unveiled the products on Tuesday, more than a year after they struck a deal that made Capital One the exclusive issuer of new Walmart credit cards. The cards will be available to consumers starting Sept. 24.

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%.

Neither card will carry an annual fee. Both will offer 5% back on purchases and 2% to 5% back on in-store Walmart purchases, depending on whether an introductory offer applies.

Cardholders will be able to redeem the rewards for travel, gift cards, Walmart purchases and statement credits.

The new cards offer more enticing rewards than earlier Walmart credit cards from Synchrony Financial, which featured 3% back on purchases and 1% back on in-store Walmart purchases.

But 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.

The July 2018 agreement between Walmart and Capital One marked the end of the retailer’s 19-year card partnership with Synchrony, dating back to before the Stamford, Conn.-based company’s spinoff from General Electric.

A Synchrony executive said over the summer that he expects the sale of Synchrony’s portfolio of Walmart loans to Capital One to be completed in October. With the sale looming, analysts have been seeking to estimate the financial impact of the addition of the Synchrony loans on Capital One’s balance sheet.

Bill Carcache, an analyst at Nomura Instinet, wrote in a research note published Wednesday that he expects Walmart to absorb 88% of the losses on that $8 billion portfolio, with Capital One shouldering the remaining 12%. He estimated a net charge-off rate of 10% to 11% on the loans.

Last year, Walmart alleged in a lawsuit that Synchrony underwrote the portfolio in a way that exposed the program to significant credit risk. Synchrony responded that the performance of the portfolio was driven by factors such as the credit distribution of applicants and Walmart’s failure to promote the credit card program. Walmart later agreed to dismiss the lawsuit.

Capital One and Walmart said Tuesday that current cardholders will be converted to the new cards starting Oct. 11, and that updated cards will arrive in the mail starting in November.

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