What does the Visa ban by a Kroger subsidiary mean for other merchants?

In response to ever increasing payment processing costs, a collection of 21 stores and five gas stations owned by a Kroger subsidiary in California have announced they will stop accepting Visa credit transactions on August 14th.  Kroger overall does have a strong relationship with Mastercard through a co-branded card program partnership.  Is this move to stop accepting Visa a bluff to force out lower processing costs? What does this move mean for other merchants?

The impact of this single Kroger subsidiary with a relatively small footprint is likely not enough to make Visa budge on the rates they have overall with Kroger, and an educated calculation by the group to know how many of their consumers use Visa credit cards for payment (this move does not impact Visa debit cards) likely emboldened their direction.

However, a large-scale flood of large, high-volume merchants abandoning major card brands could start to cause a shift in rates overall as the card brands jockey for position to ensure their ability to sustain the robust profits gained in the past year.  Costco and Sam’s Club provide interesting case studies in terms of retailers limiting their card acceptance to a specific brand or set of brands.  Costco had a well-documented switch from an AMEX only stance (since 1999) to a Visa only acceptance footprint in 2016 and Sam’s Club has switched from a limited Mastercard/Discover only acceptance stance, to accepting all card brands.

Overall, the Costco and Sam’s stances both provide direction that any retailer needs to think through their economic model, transaction volume by card type and associated fees when making a decision of the card brands they are choosing to accept. Terry Mahoney, Partner at W. Capra Consulting Group added, “More retailers are gaining a better understanding of their cost of payments and are looking for ways to optimize those costs while still serving their existing customer base.”

If giant retailers are successful in their plays to obtain lower rates from the payment brands, it is likely that the payment brands will in turn increase the rates that they charge smaller merchants in an effort to maintain their profit margins.

 

For further discussion, contact Tim at tradway@wcapra.com.