Saturday, June 18, 2016

Visa Response to Walmart is Unconvincing

By now most people have heard that Walmart Canada announced it will soon stop accepting Visa credit cards. The reason they cite is that “the fees applied to Visa credit card purchases remain unacceptably high.” Visa now has a public response, but it is not at all convincing.

Visa accuses Walmart of believing “that their cost to accept Visa cards should be much lower than all other merchants – lower than local grocery stores, pharmacies, convenience stores – and yes, charities and schools too.” Walmart’s announcement didn’t include a demand for lower costs than other retailers. All Walmart said was that Visa’s costs were too high for Walmart. Visa could reduce costs for all retailers if they want. This just looks like an attempt by Visa to pit Walmart against other retailers and portray them as greedy. Walmart doesn’t control what Visa charges charities and schools.

Visa accuses Walmart of “unfairly dragging millions of Canadian consumers into the middle of a business disagreement that can and should be resolved between our companies.” This is nonsense. If Walmart is not willing to stop accepting Visa cards under any circumstances, then there is nothing to stop Visa from continuing to increase fees indefinitely. There is clearly a maximum fee level beyond which Walmart is more profitable not accepting Visa cards. It’s Walmart’s responsibility to their shareholders to reject Visa if it makes them more profitable.

The claim that Walmart is “using their size and scale to give themselves an unfair advantage” is amusing. This may be true, but it is also common practice by Visa. Smaller retailers know that when it comes to Visa’s terms, they have to take it or leave it.

It’s common for large businesses to squabble over money. In this case the battle escalated to the point where it became public. These companies are driven by self-interest. The attempt by Visa to stake out a moral high ground is a joke. Neither company’s motives are influenced much by morality. If consumers look at their own self-interest, they will be on Walmart’s side to keep extra costs down.

5 comments:

  1. I am not going to make enough money off you! That sums it up nicely.

    If Wal-Mart passes on the "savings" it would be a good thing (and they will pass some of it on). The amount of money made by the banks and credit cards, for using the Credit Card does seem like gouging to me (but that is my opinion).

    If someone came out with a credit card that ran on as little as possible and reflected it in their rates, I wonder if it would succeed?

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    1. @Alan: The trouble right now for anyone wanting to introduce low-cost credit cards is that they wouldn't be able to offer cash back or points. The benefit of low cost cards would be spread out across everyone (in the form of lower prices) instead of going to those with the low cost cards. I'm not sure what the solution is, but we need one.

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  2. As I hold strong negative views of both companies, I use neither of their services/products. It'll be business as usual for both as the corporate slap-fight continues.

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  3. One thing for sure: That hand of competition and self interest is hardly invisible :-) What is visible: the thoughtfulness of this blog. Must visit more often :-) LP

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