Sunday , August 18, 2019

Kroger Steps up the Pressure on Visa With Another Ban on the Network’s Credit Cards

The Kroger Co. on Friday opened a new front in its battle with Visa Inc. over acceptance costs with an announcement that it will stop accepting Visa credit cards at its Smith’s Food & Drug Stores chain, which operates 134 stores in seven Western states. The ban is set to take effect April 3, Kroger said.

The move is the latest salvo by Cincinnati-based Kroger in its long-running feud with the card networks and with Visa specifically. It also steps up the pressure on Visa after the grocery giant last August banned the network’s credit cards from a much smaller chain, Foods Co., which has 21 supermarkets and five gas stations in California. Kroger owns a number of retail brands that altogether embrace some 2,800 stores nationwide.

Kroger on Friday did not rule out the possibility of further actions. “While no other Kroger banners are presently affected by this announcement, Kroger continues to explore options to reduce the cost of accepting credit cards in order to keep prices low for customers,” the company said in its announcement.

Kroger said Smith’s will continue to accept a wide range of other credit and charge cards, including Mastercard, American Express, and Discover, as well as Visa and Mastercard debit cards, both with and without PINs.

Still, in its efforts to reduce its acceptance costs, the nation’s second-largest retail chain has clearly singled out Visa as a target. “Visa has been misusing its position and charging retailers excessive fees for a long time,” said Mike Schlotman, chief financial officer at Kroger, in a statement. “They conceal from customers what Visa and its banks charge retailers to accept Visa credit cards. At Smith’s, Visa’s credit card fees are higher than any other credit card brand that we accept. Visa’s excessive fees and unfairness cannot continue to go unchecked.”

Kroger did not respond to a query from Digital Transactions News regarding its decision to focus its ban on Visa credit cards. “It is unfair and disappointing that Kroger is putting shoppers in the middle of a business dispute,” said a Visa spokesperson. “We have put forward a number of solutions to allow our cardholders to continue using their preferred Visa credit cards at Foods Co. and Smith’s without Kroger-imposed restrictions, and we continue to work toward a resolution.”

Visa and Kroger have long been at odds. Kroger’s efforts against Visa include a federal lawsuit it filed in 2016 alleging the card network interfered with its lawful routing choice for EMV-enabled debit card transactions.

Kroger has in recent months taken other steps to control its own destiny in payments, including the introduction last month of a mobile-payments service, Kroger Pay, in Columbus, Ohio, with plans for national expansion later this year. The service, which works with quick-response (QR) codes to link to the point of sale, does not exclude network-branded cards, but an accompanying rewards debit card gives customers an incentive to stick with Kroger’s own plastic.

Kroger’s latest tactic to selectively ban Visa transactions follows a pattern laid down by Walmart Inc., whose Canadian division in 2016 stopped taking Visa credit cards at a few locations in Thunder Bay, Ontario, because of what the company argued were excessive acceptance costs. Walmart later expanded the ban to 16 stores in Manitoba before the two combatants reached an agreement in January 2017.

Merchants’ focus on acceptance costs has heightened in recent years as network fees have increased. A recent study conducted by CMSPI, a United Kingdom-based research firm, on behalf of the retail industry showed fees offset more than half of the savings merchants gain from controls on debit card interchange imposed by the Durbin Amendment to the 2010 Dodd-Frank Act.

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