CINCINNATI — Look out, Visa. Kroger is taking disruptive steps to separate itself from Visa credit cards to avoid paying its interchange or swipe fees. Shoppers in more than 200 stores in seven states could find paying for groceries that much harder at yet another Kroger banner.
These fees, which charge retailers for each card payment that passes through a payment network, have long been a source of contention between retailers and card companies, but Kroger’s latest move is an unusually bold way to avoid paying swipe fees.
For now, the Cincinnati-based grocer’s strategy has primarily targeted Visa, but options to reduce swipe fees also exist for convenience-store operators looking to cut costs.
Click through for more on Kroger’s strategy against swipe fees, the current state of the conversation and how c-stores might be able to disrupt a longtime drain on profits …
Closing the door on Visa
Kroger recently escalated its beef with Visa in a big way. After Kroger’s recent announcement that its Smith’s Food & Drug Stores division will no longer accept Visa credit cards starting April 3, 2019, stores in seven states are risking turning away customers to protect themselves from Visa’s swipe fees.
In a press release announcing the decision, Kroger made it clear that the ban on Visa credit cards does not affect any other form of payment, including credit cards. Even so, plenty of customers use Visa cards, and Kroger is taking a risk by denying them.
The legal question
The past year has seen big developments on the swipe-fee debate. In July 2018, the U.S. Supreme Court sided with American Express (AmEx) to prevent retailers from extending discounts or other offers to customers for using credit or debit cards with lower swipe fees.
The decision was close, with a 5-4 vote, and it allowed AmEx to contractually prevent retailers from offering incentives for competing credit cards. Retailers can still offer incentives for customers paying via mobile apps or loyalty cards. While the decision applied only to AmEx, the precedent makes it more difficult to legally justify pushing one credit card over another.
The legal question continues
Last month, Visa and Mastercard agreed to provide approximately $6.24 billion to merchants in class-action settlement funds over excessive interchange fees, according to a notice authorized by the U.S. District Court for the Eastern District of New York.
The settlement indicates that Visa and Mastercard, separately and together with certain banks, violated antitrust laws and caused merchants to pay excessive fees for accepting Visa and Mastercard credit and debit cards, according to a press release. While Visa and Mastercard did not accept any fault, both are paying the settlement.
What it means for c-stores
Kroger’s initial Visa ban at Foods Co couldn’t have been a complete failure if the brand is repeating the move with Smith’s. If Kroger can continue to stop accepting Visa credit cards at its banners, it would be a huge blow to the perceived worth of Visa and other payment processors.
If Kroger can effectively boycott a card brand’s credit cards, why can’t c-stores?