Walmart Accused By Visa Of Using Consumers As Poker Chips To Gain Cost-Saving Deal

Walmart is being accused by Visa of using consumers as pawns in its struggle over merchant fees by making threats to ban the use of the popular credit card at its Canadian stores.

In an open letter published on Wednesday morning in various Canadian daily newspapers, Visa said “Walmart is unfairly dragging millions of Canadian consumers into the middle of a business disagreement that can and should be resolved between our companies.”

Following months of negotiations, Walmart silently declared that due to “unacceptably high fees”, it would stop accepting Visa cards commencing July 8 at stores in Thunder Bay, Ontario.

Thus, the cards will be rejected by retailers in more than 400 Canadian locations.

According to Walmart, it pays over $100 million in fees yearly for customers who make use of credit cards like Visa, MasterCard and Discover.

In its defense, Visa claimed to have offered Walmart one of its lowest rates among its merchants in Canada. However, the world’s biggest retailer desired more- costs that would be less than local groceries, pharmacies, convenience stores, charities and schools.

“And they are using their size and scale to give themselves an unfair advantage,” said the unsigned letter.

Retailers throughout Canada have their eyes on the drama but none have commented or shown that they are also building up their fences against the popular credit card provider.

Alimentation Couche-Tard, a convenience store chain made an exception. It sympathized with Walmart’s decisions after it had lobbied for years to reduce credit fees in Canada, which marks one of the highest in the world.

Spokeswoman Karen Romer said “Lower credit card fees would mean lower costs to the consumer.”

The Retail Council of Canada stated that high credit card fees are insupportable by retailers.

Karl Littler, vice-president of public affairs said, ““I’m not suggesting that the floodgates are about to open on this.”

He added that “(But) there’s potentially going to be others who will make similar decisions in the future.”

Canadian retailers have constantly complained what they describe as the high interchange fees they pay credit card companies.

The retail council representing retailers including Walmart is demanding that federal government takes actions to mandate lower fees for all merchants.

Visa and MasterCard voluntarily decided in late 2014 to reduce interchange fees by 10 percent due to threat of action by the previous Conservative government.

The move is expected to save about $400 million a year.  According to Littler, the cuts are modest as the Canadian fees are still five times higher than that in Europe and three times more than that in Australia.

Finance Minister, Bill Morneau, before the House of Commons mentioned that the government is still expecting a report on the voluntary agreement from Visa and MasterCard before reaching a decision on “how we can ensure this market stays competitive in the future.”

Charlie O’Shea, a lead retail analyst with Moody’s Investors Service was of the opinion that every retailer, most especially those with thin margins are searching for ways to cut on costs and proffer better services to customers.

“You will see more retailers addressing the issue over the next 12 months,” he said. “I don’t think Walmart will be alone in having discussions with its credit card providers.”

In O’Shea’s view, he thought Costco’s switch from American Express to MasterCard in late 2014 would have commenced the beginning of bigger changes to come.

“That in my view was the deal that would ‘wake up’ other retailers. The Walmart deal is important but the Costco deal was the first.”

A retail consultant with the J.C. Williams Group, John Williams said that Walmart’s decision to ban Visa cards will probably cause a commotion in Canada’s retail sector but may not have a huge impact.

He believed that Walmart’s s reputation will most likely experience a growth for trying to save customers money. Retailers, however, seeking to provide services instead of low prices will continue to make use of the most popular credit card.

“An extra point of gross margin will not be a big difference but if you’re fighting it out on nickels and dimes, it becomes an issue.”