What Does Kroger’s Latest Ban on Visa Credit Cards Mean for Consumers?

Mar 29, 2019

Recently, Cincinnati-based Kroger Co. announced that due to exorbitant acceptance fees it will cease accepting Visa credit cards at its Smith’s Food & Drug Stores chain, effective April 3.

That means consumers that shop at any of its 134 stores located in seven Western states will have to use cash, one of the other major credit card brands, or use any of the major card networks’ debit cards. The ban does not impact Visa debit cards.

This isn’t Kroger’s first battle with Visa. Last August, Kroger banned Visa’s credit card from the much smaller chain, Foods Co., which has 21 supermarkets and five gas stations in California. Kroger owns a number of other retail brands that total approximately 2,800 stores nationwide. The grocery giant hasn’t ruled out banning the cards at those locations in the future.

Why Kroger Is Taking on Visa?

Kroger has said that Visa’s credit card fees are higher than any other credit card brand that it accepts, including MasterCard and American Express, at Smith’s. The grocery retailer says it is taking this stand in order to keep prices low for its shoppers, but there may be much more to it.

Fraud Driving Up the Cost of Fees

Acceptance fees have continued to rise over the last several years. Card networks claim it has to do with fraud. Card companies have said they higher fees are a result of them ramping up anti-fraud/anti-theft security measures to make payment processing safer. MasterCard and Visa have scheduled another fee hike for merchant banks, effective next month. Though the new fees are not slated for merchants, banks can pass them on to sellers if they do not want to pick up the tabs themselves.

Consumers, merchants, and acquirers also want to clamp down on fraud, so this is valid but there are likely others way that they can help fight fraud and keep charges lower.

Maybe Merchants Want Another Durbin Amendment?

As part of the 2010 Dodd-Frank law, the Durbin Amendment aimed to regulate and standardize interchange fees for debit card swipes. The amendment limited the amount banks could charge retailers for debit card swipes. Currently, the card networks are not regulated like this, so they can basically charge whatever interchange fees they chose.

Advocates of the Durbin amendment said that savings that merchants experienced would be passed on to its consumers by lowering prices. However, that didn’t actually happen.

To make up for the lost funds, banks instead raised other fees on other things, like overdrafts and account maintenance.

With this in mind, what would this really mean if this were to happen for credit card swipes. Since banks like to many, they would have to make up for the lost revenues somewhere else. Maybe they would stop offer rewards programs and other perks that come with using credit cards. Ultimately, this would hurt consumers.

First, Kroger is inconveniencing those consumers who prefer to use Visa debit cards and, it reduces the amount of rewards they can rack up.

Kroger Taking Control of How Shoppers Pay

Another answer may be that Kroger is making this move against Visa to get more to sign up for its mobile-payments service, Kroger Pay, which it unveiled earlier this year in Columbus, Ohio. It plans to offer the service, which works with quick-response (QR) codes to link to the point of sale, nationwide by year’s end. Though the service does not exclude any of the major credit card brands, the service’s accompanying rewards debit card gives customers an incentive to stick with Kroger’s card.

One Last Thought

Kroger’s feud with Visa is something that all processors and merchants should pay attention to as it unfolds. It could have a major impact on all in the payments industry.

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