Another Big Merchant Challenges Visa Over Acceptance Costs

There’s nothing payments executives love more than watching a fight pitting a leading retailer against a big payment card network over credit or debit card acceptance costs and terms. That’s what they’re getting with the current spat between supermarket giant The Kroger Co. and Visa Inc.

Citing what it calls high acceptance costs, Kroger’s Foods Co chain on Aug. 14 began boycotting Visa credit cards as a means of customer payment at 21 supermarkets and five gas stations in San Francisco, Sacramento, and other central and northern California locations. The stores, however, continue to accept Visa debit cards as well as Mastercard, American Express, and Discover credit cards.

Foods Co signaled in late July when it announced the planned boycott that it could expand to other Kroger stores, but gave no details. Cincinnati-based Kroger, the nation’s largest standalone grocer, operates nearly 2,800 stores under such banners as Kroger, Ralphs, Fry’s, Fred Meyer, Roundy’s, and more than 20 others.

Asked in mid-August about a possible expansion, a Kroger spokesperson said only that the issue is still “to be decided.”

Visa issued a statement as the boycott commenced that it is “committed to working with Kroger to reach a reasonable solution so that Visa cardholders can resume using their credit cards at Foods Co in California. When consumer choice is limited, nobody wins.”

Kroger could be following the playbook of Walmart Inc.’s Canadian unit, which, in a similar dispute over acceptance costs, first boycotted Visa credit cards in 2016 at three stores in Thunder Bay, Ontario. Visa’s public response included cardholder usage incentives at grocery stores and ads reminding the local populace of the many places they could still use their Visa cards.

Walmart expanded the boycott to 16 stores in Manitoba before the two sides reached an accord six months after it began. Neither Walmart nor Visa disclosed terms.

Foods Co said in announcing the boycott that it was “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. 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.”

Foods Co did not reveal its Visa acceptance costs. But with $122.7 billion in sales last year, parent company Kroger likely qualifies for Visa’s lowest interchange rates—and it’s possible Kroger already had 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.

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 said, “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.”

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