If you have a Visa credit card, be careful next time you go to Kroger: It might get declined. And the same could start happening at more stores.
Foods Co Supermarkets, part of the Kroger KR, -0.07% chain, recently said that it will stop accepting Visa V, -0.08% credit cards at 21 stores and 5 gas stations in California starting Aug. 14, because the store is unhappy about Visa’s interchange, or “swipe” fees.
Foods Co said it will no longer accept Visa “to save on the high costs associated with the credit card company’s interchange rates and network fees.” Credit card companies including Visa, Mastercard MA, +0.17% and Discover DFS, -0.27% charge merchants every time a customer buys a product using their cards.
The fees vary, depending on the relationship between the retailer and the company, but it is typically about 2% to 3% of the purchase price. All those swipe fees can add up, especially for groceries that have relatively low profit margins, said Brendan Miller, a principal analyst at the research firm Forrester who covers payments.
Kroger has a partnership with Mastercard for its loyalty program, and produces co-branded Mastercards, said Kendrick Sands, a senior consumer finance analyst for the research firm Euromonitor. More Kroger customers could now be encouraged to use Mastercard, he said, or simply turn to debit cards when making purchases.
Will more retailers stop accepting certain cards?It looks increasingly likely that retailers will feel emboldened by the debacle between Kroger and Visa, said Craig Shearman, the vide president for government affairs public relations at the National Retail Federation, a trade group.
Shearman declined to speak specifically to Kroger’s decision, but he said retailers have little ability to negotiate with credit-card companies, who have “extreme market power” when it comes to how customers pay for purchases.
Credit-card companies like Visa set their fees based on factors including the size of the retailer and whether they’re accepting a card payment in person or online. Those fees “are presented on a take-it-or-leave-it basis,” Shearman said.
“I think retailers are definitely getting more frustrated,” he said. More customers are now paying with credit cards, meaning swipe fees are more of a hot-button issue and larger retailers could bring attention to that, he said. “That’s what gets the attention of the card companies,” he said.
Is this good or bad for consumers?Visa has indicated that it’s open to negotiation on the issue. “Visa is disappointed at Kroger’s decision to stop accepting Visa credit cards at its Foods Co. stores. When consumer choice is limited, nobody wins,” a Visa spokesperson said in a statement. “Visa remains committed to working with Kroger to reach a reasonable solution.”
“It’s a gamble for Kroger,” said Matt Schulz, the chief industry analyst at credit-card website CompareCards. “The average consumer doesn’t know anything about swipe fees. All they would know is that their favorite grocery store no longer accepts their favorite credit card.” Kroger, meanwhile, is likely hoping that Visa will lower its credit-card swipe fees for its stores.
He agrees with Shearman from NRF. “I think every retailer is going to be watching this really carefully,” he said.
The hope for consumers: Retailers will lower their prices if/when they save money on swipe fees, Schulz said. But unfortunately for shoppers, a George Mason University study last year found that retailers don’t typically lower prices when they reduce credit-card swipe fees.
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