Will Wal-Mart Give Visa the Boot in Canada?

Speaking of merchant-network skirmishes, fighting between Wal-Mart Stores Inc. and Visa Inc. broke out anew last month when, citing high acceptance costs, Wal-Mart’s Canadian unit announced that it will no longer accept Visa payment cards in its stores through a gradual phase-out set to begin July 18.

Wal-Mart’s carefully phrased disclosure appeared to give the companies room to come to an accord over interchange rates, a longstanding sore point between the world’s largest retailer and the general-purpose card networks, without hurting either themselves or their customers. Wal-Mart has 400 stores in Canada, where Visa has 54 million cards.

“Following an evaluation of credit card transaction fees in Canada and the rest of the world, we have concluded the fees applied to Visa credit card purchases remain unacceptably high,” Mississauga, Ontario-based Walmart Canada said in a statement. “To ensure we are taking care of our customers’ best interests and delivering on our promise of saving customers money, we constantly work to reduce our operating costs, including credit card fees. Unfortunately, Visa and Walmart have been unable to agree on an acceptable fee for Visa transactions.”

Walmart Canada said it pays over C$100 million annually (U.S. $78.1 million at current exchange rates) to accept credit cards. “Lowering costs such as these is necessary for us to be able to keep our prices low and continue saving our customers money.”

Walmart Canada will continue to accept Interac debit cards as well as MasterCard, American Express, and Discover cards. Wal-Mart has a bank subsidiary in Canada that issues a cobranded MasterCard for the retailer’s customers.

How long the dispute will last is unclear. Refusing Visa card acceptance is a hardball tactic on the part of the retailer, but the parties had five weeks from the announcement before Wal-Mart pulls the trigger.

And the discontinuance, set to start July 18 in Thunder Bay, an isolated small city (population 108,000) in Western Ontario, with rollout in phases across the rest of the country over an unspecified time span, means the companies could minimize the impact even if they come to an accord somewhat after that date.

“We sincerely regret any impact this will have on our customers who use Visa and remain optimistic that we will reach an agreement with Visa,” the statement says.

In a statement, Visa Canada said, “We regret Walmart’s decision to no longer accept Visa at its Canadian stores and the negative impact their decision will have on loyal shoppers across Canada. Walmart made this business decision despite Visa offering one of the lowest rates available to any merchant in the country. We are disappointed that Walmart chose to put their own financial interests ahead of their own consumers’ choice.”

Wal-Mart would not disclose its current acceptance costs or what interchange rates from Visa it could accept.

Rejecting such a big payment card brand as Visa clearly holds the potential of hurting Wal-Mart’s sales. The action recalls the time when Wal-Mart briefly stopped accepting MasterCard-branded debit cards in the U.S., but industry experts estimated that MasterCard debit transactions accounted for only about 1% of Wal-Mart’s sales at the time.

The MasterCard dust-up was one chapter in Wal-Mart’s longstanding dispute with Visa and MasterCard over debit acceptance costs and rules that dated back to a 1996 class-action lawsuit led by Wal-Mart. The networks and merchants settled the case in 2003 for about $3 billion.

Wal-Mart recently sued Visa in the U.S., accusing the network of encouraging signature-debit transactions with EMV chip cards when Wal-Mart wants the transactions to be routed to PIN-debit networks.

But the Canadian dispute also could be a play by Wal-Mart to get more issuing revenue by encouraging Visa cardholders to get the company’s rewards MasterCard, speculates Adam Atlas a Montreal-based attorney who works with U.S. and Canadian payments clients.

One “cannot but wonder what large retailers are earning on issuing with their cobranded cards,” he says. “Is this another way not of only of reducing their acquiring costs, but getting more issuing profits?”

—Jim Daly, with additional reporting by Kevin Woodward