Kroger’s major chain Foods Co Supermarkets drops Visa, citing skyrocketing fees
Foods Co Supermarkets, which is part of the Kroger consortium, has announced that it will stop accepting Visa payments due to high interchange rates and network fees.
Starting this month on 14 August, Foods Co Supermarkets will not be accepting Visa credit cards at 21 stores and 5 gas stations in California because the store is unhappy about Visa’s swipe fees. These types of fees are levied everytime a customer makes a purchase and vary from one credit card company to the next but typically range from 2–3%. Such costs can quickly add up for merchants, especially smaller businesses with lower profit margins. “When the amount retailers pay in card fees gets out of alignment, as we believe it is now, we don’t believe we have a choice but to use whatever mechanism possible to get it back in alignment,” said Kroger’s CEO in an interview with Bloomberg.
“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.”
Nevertheless, the private duopoly of the Visa and Mastercard network has extreme market power and rarely negotiates fees. “I think retailers are definitely getting more frustrated,” said Craig Shearman, the vice president for government affairs public relations at the National Retail Federation. “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,[…] That’s what gets the attention of the card companies,” he said.
While credit card fees have been a long-standing issue in the traditional payments space, both Visa and Mastercard have numerous other shortcomings, including long settlement periods, high rolling reserve requirements, complete centralization and the inability to serve over two billion unbanked people around the globe.
What’s more, both credit card companies have experienced massive outages as of late. Visa’s 10-hour IT meltdown in June caused over 5.2 million failed payments in the UK and Europe. In a letter responding to questions from the UK’s Treasury Select committee chair Nicky Morgan, Visa’s European CEO, Charlotte Hogg, noted that 10% of 51.2 million transactions across Europe were impacted. 27.6 million of these transactions were made in the UK, with 2.4 million of them failing to process properly due to a rare partial failure.
“The world’s payment networks are incredibly centralized, a small number of actors control a large percent of all money flows,” says Emin Gün Sirer, a distributed systems researcher at Cornell University. “This not only has implications for all of us regular people, but it also has implications for national security. These networks have implicitly become part of our critical infrastructure. In a world where everyone accepts Visa and Mastercard and has come to rely solely on those two, there is no preparedness when disaster inevitably strikes.”
All these pitfalls and IT glitches are exactly why countless digital currencies like Bitcoin, Ethereum, and pioneers like COTI, Currency of the Internet, have come to the fore. While Bitcoin preached for an immutable, permanent and decentralized public ledger in its early days, it is currently struggling with scalability issues, high fees and slow processing times. Its complicated user interface has made it even harder for the masses to depart from credit cards in favor of crypto payments. DAG-based payment systems, however, are leading the pack and are touted as the next frontier in blockchain. COTI, for example, provides near zero fees, instant payments, high scalability, regulation, complete decentralization, buyer-seller protections, ease of use and more, combining the best of traditional payments with the best of digital currencies.
High fees, processing disruptions and IT glitches such as Visa’s are particularly worrying when they can so heavily impact countless merchants and a vital portion of a continent’s payment infrastructure. Nevertheless, the future of payments is promising with the spectrum of cryptocurrencies currently exploring alternatives to providing financial stability, bolstering payment networks and strengthening global economic platforms.