Kroger has made good on its threat to stop accepting Visa credit cards, the culmination of a dispute over the interchange fee retailers pay to card networks for each transaction they process.
The grocer has threatened to expand the ban to its other stores if they can’t reach an agreement soon. For most companies, a fight with America’s largest supermarket chain would be a concern.
The ban knocked shares in Visa and its peers when it was announced late last month, amid worries that other frustrated companies could follow Kroger’s lead in trying to fight what they view as high interchange fee charges.
Even as challengers like Alipay, Apple Pay and PayPal encroach on their markets, investors have been drawn to the incumbent payment networks who they still believe will benefit from a structural shift away from cash and toward digital payments.
As the Kroger conflict shows, Visa and Mastercard’s customers — both the merchants that take payments and the banks that issue cards — are agitating for lower costs. Regulators, meanwhile, are creating the conditions for challengers to flourish.
The EU’s Second Payment Services Directive — PSD2 — makes it easier for third parties to initiate payments directly from customers’ bank accounts, bypassing the card companies’ networks. Mark Nelsen, Visa’s senior vice-president and head of risk and authentication products, said change is nothing new.
”The way you pay has been changing fairly significantly already,” he told the FT. ”In my mind there’s been a constant drum of innovation happening and PSD2 is designed to accelerate that.”
But while companies such as Sweden’s Trustly — which specialises in account to account payments that bypass the card networks — have built a foothold in a few markets, Nelsen said established groups’ scale would make them hard to beat. Visa itself works with 46m merchants globally.
“That connectivity is hard to replicate,” Nelsen said, adding that Visa wasn’t taking the competition “lightly” and was doing “everything we can” to make sure Visa remains a top payments choice.
Recent experience in China highlights the potential for customer habits to quickly change, with state-backed bank card network China UnionPay losing ground in its home market to mobile-driven services Alipay and WeChat Pay.
Zilvinas Bareisis, an analyst specialising in consumer payments at Celent, said the new Chinese groups offered “a completely unique and really interesting consumer value proposition — they’re not payments apps, it’s more like a lifestyle app with payments capability ingrained in that — that’s when you start shifting behaviours … that’s one thing we have been missing in the western world.”
Still, he was sceptical that Visa and Mastercard’s dominance would end any time soon, given the groups’ investments in improving services and customers’ ingrained behaviours.
Both companies have stepped up their investments in new tech and partnered with other FinTech groups, with Mastercard’s £700m purchase of Vocalink marking one of the most visible responses to the potential changes in the market, giving Mastercard a stake even in transactions that bypass its card network.
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