Wal-Mart Branded Cards to Transition to MasterCard--3rd Update

By Andrew R. Johnson 

Wal-Mart Stores Inc.'s co-branded credit cards will soon carry MasterCard Inc.'s logo under a deal the retailer struck with General Electric Co.'s banking arm to switch from Discover Financial Services.

Wal-Mart said its credit-card portfolio will convert to MasterCard later this summer, while credit cards marketed in the name of the retailer's Sam's Club division will begin switching in June, a spokeswoman for Wal-Mart said.

Co-branded cards such as Wal-Mart's typically offer discounts and other perks for shopping at the retailer's stores. The cards are issued by a bank, which in the case of Wal-Mart is GE Capital Retail Bank. GE last month said it would spin off the consumer-finance unit, to be called Synchrony Financial, through an initial public offering.

Credit-card companies often battle for such partnerships when they come up for renewal. MasterCard in recent years has been fighting to win more co-branded partnerships to boost transaction volume over its payments network.

A spokesman for Purchase, N.Y.,-based MasterCard said the company has a "strong commercial relationship with Wal-Mart."

The switch to MasterCard won't prevent customers who have Discover-branded cards from using them at Wal-Mart or Sam's Club stores, a spokesman for Riverwoods, Ill.-based Discover said.

Discover has had a partnership with Wal-Mart since 2005, the Wal-Mart spokeswoman said.

Discover said in a February regulatory filing that contracts related to a third-party partnership will be terminated in the middle of this year. The loss will have a "meaningful impact" on the volume it generates from its network partners as well as profits for its payment-services segment, though the company said it didn't expect a material impact on its overall profits.

The deal is "nice" win for MasterCard but will likely have a "fairly immaterial" financial impact on the company, Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods, wrote in a research note on Friday.

While big retailers like Wal-Mart partner with networks such as MasterCard for credit-card programs, they have also tussled with networks for several years over fees merchants pay to accept cards. They argue that MasterCard and its larger rival Visa Inc. have conspired to set the fees at arbitrarily high levels.

To attempt to put such issues to bed, Visa and MasterCard reached a settlement in 2012 with merchants who brought class-action lawsuits against the card networks in 2005.

The deal, which stands to deliver $5.7 billion to millions of merchants, was approved by a federal court judge in December, but many retailers have appealed.

They argue the settlement wouldn't stop swipe fees from rising in the future and grants overly broad releases to Visa and MasterCard from future litigation.

Wal-Mart filed a lawsuit against Visa last month alleging the credit-card network's swipe fees violated antitrust regulations. The retailer is seeking at least $5 billion in damages from Foster City, Calif.-based Visa.

Visa and MasterCard set swipe fees, but they are collected by banks that issue their cards.

Write to Andrew R. Johnson at [e-mail]

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