Monday , December 10, 2018

Kroger’s Foods Co Lobs a Grenade at Visa in the Ongoing Guerrilla War Over Card-Acceptance Costs

Citing acceptance costs, Foods Co, a California unit of leading supermarket chain The Kroger Co., says it will stop accepting Visa credit cards Aug. 14 at 26 stores.

“Foods Co is discontinuing the acceptance of Visa credit cards to save on the high costs associated with the credit card company’s interchange rates and network fees,” the company said in a Monday announcement. “Visa’s rates and fees are among the highest of any credit card brand. The savings will be passed along to Foods Co customers in the form of low everyday prices on the items shoppers purchase most.”

The ban will include 21 Foods Co grocery stores and five gas stations in Central and Northern California, including San Francisco, Sacramento, Fresno, and Bakersfield. Foods Co will continue to accept Visa debit cards as well as Mastercard, American Express, and Discover credit cards.

“Our customers consistently tell us that one of the most important factors in choosing Foods Co as their supermarket of choice is our low prices,” unit president Bryan Kaltenbach said in the announcement. “At Foods Co, we are committed to saving our customers money. Today’s decision will help Foods Co continue to deliver great value to our customers with low prices, fresh products, and friendly service.”

In an emailed statement, Visa Inc. said it “is disappointed at Kroger’s decision” regarding its credit cards.

“When consumer choice is limited, nobody wins,” Visa said. “Our goal is to protect the interests of our cardholders to ensure they can use their Visa credit cards wherever they shop. Visa remains committed to working with Kroger to reach a reasonable solution.”

Kroger’s chief information officer, Chris Hjelm, told the Bloomberg news service that the Visa boycott could expand elsewhere in the Kroger world beyond Foods Co, but he gave no details.

Foods Co did not reveal its Visa acceptance costs. But with $122.7 billion in sales last year, Kroger likely qualifies for Visa’s lowest interchange rates—and it’s possible Kroger has struck its own interchange deal with Visa. For credit card transactions at supermarkets, Visa’s latest public interchange schedule says rates vary, depending on volume and card type, from 1.15% of the sale plus 5 cents to 2.10% plus 10 cents for high-end rewards cards.

Monday’s announcement is not only the latest skirmish in an ongoing conflict between Visa and Cincinnati-based Kroger over payment card costs and related issues, but also another example of a big merchant refusing to accept Visa cards on a limited scale in hopes of winning concessions before taking wider action. For example, Walmart Inc.’s Canadian unit stopped accepting Visa credit cards in July 2016 in a few stores in Thunder Bay, Ontario, then expanded the boycott to 16 more stores in the province of Manitoba. The two sides reached an accord after six months, but did not reveal its terms.

Also in 2016, Kroger sued Visa in U.S. District Court in Cincinnati, accusing the payment network of thwarting its plans favoring PIN-debit transactions as it converted its stores for EMV chip card acceptance. Visa denied the accusations. The case is on hold until August, according to a Visa regulatory filing.

The Minneapolis-based Merchant Advisory Group, an association of mostly large merchants concerned with payments issues, declined to comment on the Kroger-Visa spat specifically. But in an e-mailed statement, MAG chief executive Mark Horwedel tells Digital Transactions Newsthat “the payments ecosystem should be grounded in transparency, choice, and competition with balanced responsibility for payment security and delivering the best customer experience. Merchants should have the flexibility to accept different types of payments based on what makes good business sense for their companies and their customers.”

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