Frustration Reaches New Heights Among Grocers over Payments Costs

Frustration with electronic-transaction pricing may be reaching a boiling point in the supermarket industry, says one expert who keeps an eye on payments issues at the National Grocers Association, an Arlington, Va.-based trade group that includes independent supermarkets and wholesalers among its 12,000-plus members. Interchange and other costs for credit and debit cards “appears to be rising in an uncontrolled fashion,” says Stuart Zlotnikoff, senior vice president at the NGA. He adds that last year's huge settlement of the so-called Wal-Mart anti-trust case, in which Visa and MasterCard agreed to slash signature-debit pricing and allow retailers to accept their credit cards without accepting debit, has brought little relief to the grocers he talks to. “It was a little depression in the curve,” he says, “but the trend line continues to rise ever upward.” In part, he says, this is because both bank card networks raised interchange rates for credit cards at most groceries this month. Visa, for example, changed its supermarket rate from 1.20% to a volume-driven range of rates from 1.15% plus a nickel up to 1.24% plus a nickel. Electronic-payment acceptance costs for many grocers now equals their profits, Zlotnikoff says. And, he adds, “it's on a trend line to exceed net profit. There's tremendous frustration out there post-settlement.” Adding to grocers' frustration, says Zlotnikoff, is that most of them have few alternatives. “There's no real negotiating opportunity for second- and third-tier supermarkets to qualify for lower rates,” he says, referring to Visa's reported willingness to negotiate below-list rates for mega-retailers like Wal-Mart Stores Inc. that command huge transaction volumes (Digital Transactions News, Nov. 25 and Dec. 1, 2003). Zlotnikoff says some merchants have begun exploring alternatives such as debit cards processed through the automated clearing house, which can be half the cost of even online debit networks. But even this alternative has drawbacks, in his view. “It's fraught with all kinds of issues of customer acceptance and [cashier] training,” he notes. Yet others, he says, have decided to stop accepting the bank card associations' signature-debit cards, but he can't say who or how many. The NGA in February told a merger-enforcement workshop jointly sponsored by the Federal Trade Commission and the Department of Justice that electronic-transaction pricing no longer bore any relationship to processors' costs. And the trade group urged that the federal agencies “investigate the obvious anti-competitive effects of Visa's special pricing agreements, and to take appropriate remedial action.” Asked whether he expects any action from the government, Zlotnikoff would say only: “It's up to the agencies to react as they see fit.” In the end, however, there's no single solution for most grocers, he says. At the moment, he says, the issue is absorbing far too much time and resources the merchants would rather be devoting to customer service. “It's requiring all kinds of activity driven by cost containment,” he says.