Walmart Canada vs. Visa: A Line in the Sand

On the surface, Walmart Canada's decision to stop accepting Visa credit cards in protest of its fees comes across as simply another conflict between the giant retailer and the card network. But it's setting the stage for something bigger.

Both companies are building out their payment technologies, with a lot more on the line than just the cost of each credit card swipe. And even if this latest conflict comes with a heavy sense of deja vu, its resolution could affect the way retailers handle payments in entirely new ways. 

As Walmart develops its Walmart Pay system and aggressively negotiates more favorable deals with its other financial partners such as Green Dot, Visa is similarly taking a more aggressive stance, rejecting overtures from the likes of PayPal while simultaneously diversifying its offerings to banks and merchants.

With the recent spotlight on Walmart's legal dispute against Visa over debit routing, it is easy to forget that Walmart has been down this road with Visa before, shutting the network's credit cards out of its transactions at its Sam's Club warehouse stores until earlier this year.

But even if Walmart got favorable terms the last time around, the retailer may be overestimating Visa's willingness to budge on its pricing in the current market. The card network was put on the defensive after it reportedly agreed to rock-bottom pricing to win a contract at Costco away from rival American Express. Visa CEO Charlie Scharf repeatedly called that situation "unique," and noted that it guaranteed that Visa would be the only card brand accepted in those stores.

This is not the case with Walmart, which accepts multiple payment options even in its Sam's Club warehouse stores.  Though Walmart will not share current numbers on its payments tender mix, Michael Cook, Walmart's vice president and treasurer, did state publicly at a 2011 SourceMedia conference that debit and cash transactions represented the majority of transactions in U.S. Walmart stores, while credit and debit transactions dominated Sam's Clubs transactions.

Taking into account that Interac drives the majority of debit transactions in Canada, it is likely that even more debit transactions take place at Walmart Canada stores than in the U.S.

As such, Walmart Canada may be able to justify holding strong against Visa credit card transactions as a way to cut expenses and see if that adamant posturing can pay off, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.

"You have to remember that a retailer the size of Walmart negotiates its own deal," Crone said. "You could anticipate that Visa's reaction might be to take this seriously and go to [Walmart headquarters in] Bentonville, Ark. and negotiate on the fee."

And every day that Walmart can delay signing terms with Visa, its position gets stronger.

If the Walmart Pay mobile wallet rolls out this year in Canada at the same time as the U.S., it could set the stage for Walmart to inform its customers that if they want to use Visa credit cards, they can do so through the Walmart Pay app, giving the retailer a greater share of data and marketing interaction any time its customers choose to pay.

Or, Walmart could borrow a page from PayPal and urge shoppers to switch to a less expensive form of payment such as ACH — a tactic Visa CEO Charlie Scharf has harshly criticized in recent weeks.

But allowing Visa transactions through the mobile app could satisfy customers and deliver more use of the app for the retailer, Crone said. "It's a form of tender steering, but it's definitely more about use of the app," he added.

That said, Walmart Pay is much too new to have played a significant role in Walmart's dispute with Visa. Right now, the mobile wallet is deployed in only two U.S. states.

Walmart Canada did not respond to PaymentsSource inquiries, issuing only what it had stated on its website that it made the decision to "ensure we are taking care of our customers' best interests and delivering on our promise of saving customers money."

Visa issued only an e-mail statement, reiterating its position that the Walmart decision will have a negative impact on loyal shoppers across Canada. In addition, Visa feels Walmart is blocking its transactions despite offering what it feels are the lowest rates "available to any merchant in the country."

Brian Riley, principal executive advisor with CEB TowerGroup, notes that Walmart has had mixed success in the past with this particular negotiation tactic.

"Walmart has a strange way of handling card business, essentially trying to drive payments to one brand or another to influence rates," Riley said. "The brands have held strong pretty well over the years in not being pushed around by a specific retailer."

Still, Walmart has made clear that it is willing to make sacrifices to guarantee better fees, Riley said.

"If you don't like the fees they want, they will go away," he added. "But they seem to cave in and come back, over time."

American Express lost its exclusive credit card deal with Costco Wholesale last year, resulting in Citigroup and Visa landing that relationship in the U.S., while MasterCard earned the Costco deal in Canada.

"This sounds more like a treasury move than a marketing move for Walmart in Canada," Crone added. "Marketing wants as many sales as possible."