Pricing, Retailing Rivalry Likely Led to Sam’s Club’s MasterCard Deal

Wal-Mart Stores Inc.'s decision to accept MasterCard Worldwide credit cards?but not credit cards from Visa USA–at its 500-plus Sam's Club stores stems from competitive forces in the warehouse retailing business, but may also signal the beginning of the end of uniformity of merchant acceptance of the two bank card brands. The decision to take one of the two bank cards exclusively follows by less than two months a similar decision by Dollar General Corp., which is accepting Visa but not MasterCard (Digital Transactions News, Sept. 29) after decades of lockstep dual acceptance by nearly all card-accepting merchants. A 23-year-old warehouse-club chain with 47 million members, Sam's Club said on Thursday it has started accepting MasterCard credit cards at all of its locations in the U.S., Canada, and Puerto Rico. It already takes Discover Financial Services LLC credit cards as well as a proprietary card and signature-debit cards from Visa and MasterCard. It also accepts Visa and MasterCard credit cards for gasoline as well as for online purchases. A year ago, it started accepting the Debitman card, a non-bank, PIN-debit product processed on the automated clearing house. “Our members have told us that they like having credit options for their purchases at Sam's Club, and as we continue to focus on how we enhance their experience, the addition of MasterCard is a natural extension of our commitment to meet their needs,” said Mark Goodman, executive vice president for marketing, membership, and e-commerce for the chain, in a statement. The exclusion of Visa most likely stems from favorable discount fees retailing giant Wal-Mart was able to win from MasterCard and its processors, observers say. “They don't have rack rate,” says Steve Mott, principal at payments consultancy Better Buy Design, Stamford, Conn. A Wal-Mart spokesperson refuses to comment on pricing. She says the decision to take MasterCard over Visa “had more to do with the total solution MasterCard developed for us, rewards programs, and working with their [card] members.” Details of this solution are not yet available. “We're still working through how that will look in the future,” says the spokesperson. Consultant Mott speculates, however, that the one-sided acceptance may be temporary, as MasterCard may have traded steep pricing cuts for a specified period of exclusivity. At the same time, MasterCard may have learned hard lessons in negotiating with Wal-Mart in 2004 when the Bentonville, Ark.-based retailer stopped accepting its debit card for about four months, reportedly to wring pricing concessions from the card company. For its part, Wal-Mart isn't ruling out acceptance of Visa credit cards, or other card products, in Sam's Club stores. “It's still a possibility we'll accept other cards,” the spokesperson says. Wal-Mart refuses to disclose the percentage of all Sam's Club transactions that are currently derived from cards. Still, cracks may now be appearing in the once-solid façade of dual acceptance. Mott predicts more such one-sided deals will come as merchants learn to customize payments acceptance portfolios to their customers' habits. “Merchants will accept one bank card or another but also other payment types [for example, ACH or prepaid cards] that fit customers' lifestyles and shopping patterns,” he says. Also, by accepting a bank-association credit card, Sam's Club is likely also hoping to woo customers from warehouse rivals like Issaquah, Wash.-based Costco Wholesale Corp., which accepts American Express Co. cards exclusively. Costco's 488 stores rang up about $40 million each in the three months ended Sept. 3, nearly four times the volume each of Sam's Club's 574 U.S. stores did in the quarter ended July 31. By offering a MasterCard credit card option, Sam's Club may now be able to attract high-spending shoppers looking for rewards and other perks on their cards, many of whom could be AmEx users at Costco. “If they get the lift they anticipate [by accepting MasterCard], and they get customers who are going to Costco, it's a win-win,” says Mott. Even so, experts caution there's more to winning customers from competing retailers than the selection of payment options. “I'm not sure Sam's Club is going to get the same lift Costco has [from AmEx],” says Mott. “It's not just how you pay but also [factors such as] product selection and how often that's refreshed.”