Sick of It! Kroger Bans Visa Credit Cards For Payments at Regional Supermarket Chain

Journalist:
March 1, 2019

Kroger is fed up with Visa’s outrageous fees.

Instead of forking over the money to the credit card network, it will stop allowing its Smith’s Food & Drug Stores to accept Visa credit card payments.

Shoppers at those stores will no longer be able to use their Visa credit cards beginning April 3.

The chain joins one other Kroger brand, Foods Co. Supermarkets, that no longer accepts Visa credit cards.

The ramifications of Kroger’s move are huge. Kroger is the leading grocery chain in the U.S. based on retail sales. Smith’s operates 134 stores, mainly concentrated in the West.

The U.S. Department of Agriculture states Kroger is the largest traditional grocery retailer, while Walmart is the largest U.S. retailer of grocery products. Source: U.S. Department of Agriculture.

One can’t help but wonder how many other retailers will join this leader and stop accepting payments from Visa.

Interchange Fees Starting to Backfire

Kroger, like many other merchants, have found themselves between a rock and a hard place when it comes to these credit card fees. Called interchange fees, networks like Visa take a percentage of the sales made when people use their credit cards.

Merchants have had to absorb the fees, pass them on to their customers by raising prices, or both. Considering Visa is the largest of all the networks, few merchants have been willing to cut ties with it. They risk losing millions of Visa cardholders as customers.

Customers using their Kroger Visa debit cards, both with and without a PIN, will not be impacted by the move.

Kroger Blasts Visa’s Fees as ‘Excessive’

Kroger crunched the numbers and found forking over the fees at the expense of customers wasn’t worth it.

In Smith’s case, Kroger said Visa’s fees for it are the highest of any credit cards accepted by the retailer. That’s only adding upward pressure on food prices for all customers.

Mike Schlotman, Kroger’s executive vice president and CFO, didn’t hold back in showing that his patience had run out with Visa. He said in the statement:

“Visa has been misusing its position and charging retailers excessive fees for a long time. They conceal from customers what Visa and its banks charge retailers to accept Visa credit cards. Visa’s excessive fees and unfairness cannot continue to go unchecked. That’s why, starting April 3, Smith’s will accept all forms of payment except Visa credit cards.”

Smith’s stores will continue to accept Mastercard, Discover, and American Express.

Kenny Kimball, president of Smith’s, noted how competitive the grocery business can be, so it’s essential that it keep its prices as low as possible. To stop Visa credit cardholders from shopping elsewhere, Kimball said the chain would introduce a slew of incentives.

“To help our customers through this transition, we have great offers inside our Smith’s stores today, including double rewards points towards fuel purchases and other promotions to save on groceries.”

Tone Deaf Visa, Mastercard Don’t Heed Messages

We’ll have to wait to see what negotiations or moves Visa may make in response to being dropped by this huge retailer. One thing is clear, however.

The backlash over the fees seems to not be causing much concern.

Visa and Mastercard are reportedly on the cusp of hiking these fees, CCN reported.

While the behemoth credit card companies anticipate the move will help them further line their financial coffers, merchants could be chased away. In the wings waiting for them is the crypto space, where Bitcoin payments are a lot cheaper to process.

Bitcoin or another cryptocurrency won’t supplant PayPal and credit cards as payment options yet, but they could in due time, CCN has reported. That’s the assessment of Lisa Ellis, a partner and equity analyst with sell-side research firm MoffettNathanson.

Ellis wrote in a client note:

“Cryptocurrency systems (e.g., Bitcoin, Ethereum, Ripple) are potentially disruptive to private payment systems. Their core design characteristics — which are aimed at enabling ‘freedom of money’ — are in direct contrast to the characteristics of most traditional, private payment systems.”

Neither Visa’s, nor Kroger’s stocks, moved much on the news. At the time of writing,  both were up about half a point.

Click here for a real-time Bitcoin price chart.

Last modified (UTC): March 1, 2019 17:13

Tedra DeSue @tedradesue

If you can buy it, trade it, invest in it, or sell it, I write about it. For more than 20 years, I've covered all things finance. Based in Atlanta, Ga., I threw myself into covering the crypto space with a keen understanding that it would be an industry disruptor. I'm in constant search for the real Satoshi Nakamoto!