Stateside coverage of one of the year’s most intriguing payments stories has been surprisingly muted.
In July, Wal-Mart stopped accepting Visa cards in its three stores in Thunder Bay, Ontario, a city of nearly 110,000 just north of the Minnesota border.
After an initial flurry of stories, the tempest died down and it seemed the parties might take their spat behind closed doors and achieve a quiet détente.
No such luck: In September, Wal-Mart announced plans to extend the action to its 16 Manitoba stores.
Wal-Mart has never been shy about its campaign to lower acceptance costs. After all, a key driver of the Wal-Mart Pay mobile app is the company’s desire to steer point-of-sale transactions to low-cost automated clearinghouse rails.
Merchant complaints over high interchange fees date back decades. But until recently, when push came to shove, retailers prioritized completing the transaction in whatever fashion the consumer preferred.
We’re now seeing a groundswell of emboldened merchants willing to endure some friction at the point of sale in pursuit of the broader goal of cost reduction.
Count among this group the U.S. grocer Kroger, which in some regions has begun blocking signature debit transactions.
This prompts shoppers who don’t remember their personal identification numbers (or opt not to enter them) to select a different form of payment—possibly a higher-cost credit card, ironically—or to abandon their carts.
The scenario reminds me of the annual cable TV ritual, with providers threatening to drop certain stations while negotiating rights fees.
Naturally, both sides blast out messages sidling up to customers and claiming they’re looking out for the consumer. Networks claim the providers are trying to limit consumer choice; providers say they’re fighting to keep monthly bills low.
Virtually without exception, the posturing ends with a compromise and little if any service interruption—even as the brinksmanship is deemed necessary to close the deal.
This Canadian card dust-up is the equivalent of a cable provider cutting off a few stations in one neighborhood to test the blow-back.
In Thunder Bay, Visa has posted numerous billboards reminding consumers of all the great shops where their cards are welcome. The card network also launched a promotion offering gift cards to people using Visa to purchase groceries.
Wal-Mart’s customer messaging refers to “unacceptably high” Visa card fees, adding, “Wal-Mart’s purpose is to save customers money so they can live better… which requires us to keep costs as low as possible.” Sound familiar?
Let’s be honest: At the end of the day we’re talking about money, and mainly how merchants and the card networks/issuers divide it. A widely quoted study following a revamp of Australia’s interchange model found almost no impact on retail prices—that is, no savings passed on to consumers.
It’s no coincidence Wal-Mart picked this fight in an outpost like Thunder Bay—perhaps best known to Americans as the childhood home of David Letterman’s longtime bandleader, Paul Shaffer.
Although the retailer indicated from its initial June announcement it plans to discontinue Visa acceptance across its full 400-plus store Canadian footprint (while also assuring no impact on other countries), Thunder Bay represents a conveniently remote location from which to conduct a test with minimal spillover risk.
A late-summer silence led some in the Canadian press to speculate the experiment wasn’t going well for Wal-Mart. October’s expansion to the entire province of Manitoba seems to dispel that notion.
Nonetheless, Wal-Mart’s follow-up is best viewed as a louder warning shot. After all, it has yet to turn off Visa in the major population/media centers (Toronto, Vancouver, and Montreal) or the governmental hub of Ottawa where legislators have already floated the notion of revisiting interchange regulation.
Both sides have made appropriate conciliatory public statements about remaining hopeful for a reasonable solution. And odds remain good that one will eventually be reached. The question is how far the battle will escalate before that happens.
Given the larger pool of dollars at stake and the already festering hard feelings between merchants and card networks south of the border, it’s hard to see why Americans shouldn’t expect an eventual replay of this standoff.
That is, unless both parties determine the pain wasn’t worth the effort, or the outcome of the Canadian experiment provides a road map that allows them to fast-forward past the battle scene and jump to the endgame.
Unfortunately, that’s probably too rational a path to expect on such an emotional issue. Oct. 24 is Wal-Mart’s scheduled date to shut off Visa in its Manitoba stores.
The market’s reaction—or lack thereof—should tell us a lot about what to expect in the U.S. in the not-too-distant future.