rasheed

Winco does take credit, but you have to use a reloadable gift card. Credit reloads are done on the website.

Yes, Kroger chose a regional chain with low Visa credit usage, but if Kroger continues to offer lower prices than other chains, I have no issue using an Amex or Discover there instead or bringing a Kroger gift card bought with Visa credit elsewhere. I think that is precisely the point, I will accept limited payment options in exchange for best consumer pricing. Aldi's decision to take credit is interesting, but I imagine it leads to a much higher spend per transaction.

I already have to deal with this when buying fuel (buying gift cards) so I can see this becoming more common. This is moving us backwards, but I think the blames lies with the payment networks who didn't put the focus on lowering the cost of a transaction or doing more to reduce fraud by adoption harder to clone technology sooner.

tmiw

I suspect AmEx and Discover are next once Kroger achieves what they're looking for with Visa. It's just that Visa gets most of the attention due to most cards having that logo.

And if all of this means that the US ends up increasing cash use, that will likely cause some sort of action to be taken--whether by the government or the networks themselves.

storewanderer

WinCo has done some pilot tests on Credit Acceptance. They took Credit in Antelope, CA in the early 00's then shelved that trial. They currently take credit in the Tulsa, OK market which is probably another test.

FoodsCo runs low end stores in underserved areas that are nothing like the rest of Kroger. Most people do not even know Kroger operates in northern and central California; there is little to no advertising done and these stores serve a niche but they are being used as pawns currently regarding this "no Visa" thing because they know it is so few stores and such low marketshare and customers already used to sub-par store conditions that it won't really matter much. Watch Kroger try no Visa (or to run stores the way the FoodsCos are run) in an important market like Phoenix, or Denver, and see how long that lasts. They know better. The irony of Kroger shutting down Visa in FoodsCo is that it probably costs them more to accept certain "alternate" card types that people may use such as American Express. I always thought American Express was the higher fee card. Maybe I am wrong. I would have rather seen them just go PIN Debit only and eliminate all credit card acceptance if they were that concerned about processing fees at FoodsCo. It is not an unheardof policy in California with the common no-Credit and .35 fee Debit Arco gas stations all over, along with the scattered WinCos that are Debit Only.

storewanderer

I too used to buy a lot of gift cards (Arco) then buy fuel. I would buy the gift cards at Kroger (Smiths or Ralphs depending where I was) during 4x fuel point promotions. I also like to buy gift cards there under that and then go shop at Target (in many cases for items they sell at Kroger). I'd rack up the fuel points then do a fill up every month at the Kroger station in between the Arco fills. Then something funny happened. Kroger quit selling those Arco gift cards. Then they quit selling Shell gift cards too. I think they do still have the Target ones though.

There is a segment of existing businesses that has taught the consumer that they can get a lower cost by accepting limited payment methods. Costco, WinCo, Arco are all examples of this. But look around you, Arco is contracting more than it is expanding, and accepts Credit in AZ, WA, and scattered sites in the other western states too. Then there are those weird Rebel Oil Arcos in Las Vegas that accept credit in the store but only for merchandise and not for gas. Costco moved over to Visa which has far wider card marketshare than its previous card partner which really opened their payment options up for more customers. And though WinCo is expanding into new markets they have made that curious decision to accept Credit in Tulsa (one of their new markets). So I am not sure these "limited payment option merchants" are going to become more widespread. And I do not think existing merchants who have historically accepted all payment options can now suddenly try to cut certain options and be successful. It is a lot easier to never give something to someone in the first place (like Arco or WinCo) than take something away (like Kroger did at FoodsCo).


I don't think we will see more needing to do "work arounds" to pay credit at places. I think it is just certain merchants that are being uncooperative.

tmiw

Last time I used a MC debit card at Ralphs the terminal wouldn't allow me to bypass the PIN. In effect, they're already doing similar stuff at their other brands, just not with credit card acceptance (yet, anyway).

BTW, here's a relevant video that came up on my recommended list tonight:

rasheed

Yes, so if I am large merchant, here is what I would try to do (which some are doing):

-Negotiate routings for credit transactions that are cheaper (Paypal in-store, Chase, Capital One, other co-branded options)
-Keep pushing to be able to reject higher fee credit card (reward cards) and not have to follow "honor all cards" (this may likely lead to an overall lower interchange rate).
-Start selectively removing networks and/or start offering special discounts/coupons to use certain card types.

I am going to say that the biggest mistake in the recent interchange game was Visa's decision to go with Costco. While the upside for Visa branding seems good, I think people would have spent at Costco regardless of the card accepted (already used to narrow options). What it did though is it really put the rest of the grocery industry at odds here, and I also can't imagine any issuer of a Visa rewards card can be happy with the revenue it gets from Costco transactions. If Costco can pay Visa .40% (I haven't verified this recently) (the previous Amex rate was presumed to be .60%), why would Kroger, Target and others have to pay more? We know that Visa had to price below Amex to win the deal, but I think Amex can look at Costco in the rear mirror as it starts to finally figure out its place and realize that was a good decision even if it depressed its interest earnings from the seemingly high amount of carried balances on its Costco co-branded card.

There is just a lot of turmoil in the grocery business as Albertsons doesn't want to make any waves as it tries to exit via IPO (probably too big to get an acquisition at this phase). Kroger is making small waves as it sees that it couldn't get Target to bite. Walmart has always been aggressive in its card acceptance strategy, but maybe that is mostly due to long-term contracts from long ago. It's spat with Capital One and Synchrony did seem to indicate that not all is well there. Aldi, Winco and others are just chasing marketshare and everyone is losing to Amazon which is trying to keep shifting payments to its not credit alternatives (which may still start its own bank at some point). I think even for Amazon, paying by points (Discover, Amex, Citi) is cheaper than taking credit. I assume Amazon continues to make a ton of money on unused balances like everyone else who has popular stored value (gift card) programs.

Yes, I fully expect rewards to get demolished as they have in Europe once these changes take hold. I am thinking forward here and starting to do some otherwise opposite thinking, finding good reward cards that are not World/Signature or higher. I am finding some Platinum and Gold cards that might still qualify for lower interchange rates.

tmiw

So this article claims that there's been an additional settlement to resolve the rule issues. I haven't looked too closely at the class action website to confirm whether this is actually the case. However, if that's indeed the case, we probably don't have to worry about interchange caps in the short to medium term.

(Though I suppose there's still the possibility that minimums and/or surcharges will become more common despite the settlement.)

rasheed

Okay, Kroger is ready to expand its Visa credit network block. Now it is the Smith's chain, April 3, unless Visa makes a deal.

https://finance.yahoo.com/news/anoth...9--sector.html

My thinking has shifted quite a bit here. I support merchants accepting whatever cards it wants to take just as consumers have a choice where the want to shop. I also feel that this is likely the best chance for rewards cards to survive. If there are wide changes in overall interchange rates, then all card issuers will have to reduce rewards significantly (see EU), but if it is selective, then it is a much different situation.

There is a massive wild card here though with Kroger and that is the Chase Pay (or Kroger Pay) implementation. Chase is the largest general purpose issuer of cards in the US (over 90 million) and except for one co-branded card, they are all Visa branded. If Kroger can get the rollout finish, the actual number of impacted Visa credit card holders will be significantly be reduced as any Chase credit card would still be accepted. Everything after Chase on the Visa side shrinks small quickly. Capital One was leaning toward the Visa direction, but they seem to have held off making mass changes. Barclays has a few Visa co-brands, but not significant. BofA who was one of the founders of the organization that became Visa has been pushing more Mastercard out there recently. So, once Kroger solves the Chase issue, I think Visa is not going to have much leverage.

Of course, this is also a great opportunity for the other big 3 brand networks to promote their cards more. I know some people say that AmEx might be more expensive than Visa, but I am not believing this as we know AmEx will negotiate and make deals. So bring on those 6x, 4x or 3x AmEx cards and the occasional 5x quarterly rewards from Discover or Citi Mastercard.

This is going to be interesting and let's be clear that this is one of the biggest survival tests for the reward cards that are such a major source of FT attention. It had to be a big merchant player in a specific type of low margin retail business to make a move (no one was going to have such sympathy for most other retailers). Gasoline/fuel just stayed on the sidelines aside from cash/credit differences (or is more focused on removing swipe from their business).

tmiw

Chase being the largest Visa issuer still means that a significant number of cards are going to be impacted. For one thing, if Kroger ends up getting concessions (or even if not and sees little impact on their business due to said Chase deal), others will definitely try doing the same. Eventually the result is going to be similar to if interchange was cut across the board.

Also, if issuers rebrand their rewards cards as MC/AmEx/Discover, I can see this entire exercise being repeated with each of those too. Visa's getting the attention right now because they have the most cards/usage.

BTW, how does Smith's fit into the overall grocery ecosystem?

rasheed

Great question. So, we are still seeing this added Kroger group as a careful addition, still avoiding brands that probably sell higher margin items like Frys or Ralphs. I can speculate that many of these stores don't get as much sales from items such as alcohol due to local laws or traditions.

There is also very heavy competition from other legacy regional brands such as Supervalu or Albertsons and Aldi's West expansion.

I see people pointing out that these retailers will just pocket the savings in interchange fee. I get that thought, but I have personally seen Kroger slash prices on many items. Perhaps it is due to Aldi competition, but there is no doubt that prices on many common grocery items have both sale and store brand prices that I can't see other retailers able to touch. This includes the organic category too.

So, still low risk to Kroger, but definitely hitting areas where grocery price is likely more sensitive. I think Kroger will be easily able to show lower prices if pushed.

mikesyr18

More people have a Visa than an AMEX for obvious reasons. By signing a deal with Visa rather than AMEX, Costco allowed more people to use credit cards while also undercutting AMEX's bid on interchange fees. There's a reason Visa would offer near 0% interchange fees because there's something in it for them. I could also imagine Costco and Visa gets a small piece of the interest and interchange charges generated by Citi's Costco Visa card

Costco is not a "grocery store," it is a warehouse club... Big difference. Costco offers groceries and so much more, and shopping is exclusive to members who pay an annual fee to shop there. At least in my area, Costco is the only major warehouse club (Sam's Club closed years ago) so there isn't much competition. On the other hand, if Target decides they only want to take MasterCard - I'll happily go across the street to Walmart where they take cards from all networks.

tmiw

People say that about interchange because that's basically what happened after Durbin's interchange caps became law. Granted, they didn't apply to 100% of debit cards, but it applied to enough that there should have been at least some savings seen at the register by now.

Anyway, thinking about it some more, I wonder if just accepting surcharges for card transactions is going to be better for rewards cards in the long run. The savvy among us will still find a way to get more than 2-3% return from their points earning (not to mention bonuses from minimum spend) in that scenario, plus it likely won't require any cuts in interchange. Meanwhile, if Kroger and others succeed in getting interchange cut (since that'll be what it takes for them to start accepting Visa et al again), rewards definitely get cut.

mikesyr18

In some states, credit card surcharging is illegal.

Let the free market determine interchange rates. If merchants feel like they're paying too much, they can stop taking certain cards, but deal with the consequences when that $4,000 purchase goes out the window when the customer's Visa card isn't accepted. If 3/4 major networks are always accepted - the one network charging a higher interchange rate will be forced to lower theirs to compete.

Suggesting some law that limits interchange fees to 0.7% or something is just some liberal mindset that will hurt everyone in the long run except the merchant, just like with the Durbin Amendment. I'm not sure what our Congress hoped to accomplish by voting in favor of Durbin because consumers and banks certainly haven't benefitted.

tmiw

Considering recent SCOTUS decisions, not for long. Even if that wasn't the case, cash discounts (which gas stations and a fair number of other merchants have done for a while) are effectively the same as surcharging, just by a different name.

My point is that customers just paying surcharges for card use may work out better in the long term than actual interchange reductions from a rewards perspective, regardless of how those interchange reductions happen. This assumes that interchange doesn't go down anyway in the event surcharging becomes commonplace, of course (which very well might since FT and similar are still a fairly small subset of the card using community; cash use could end up significantly increasing as a result of surcharges becoming common).

rasheed

My opinion is I see no practical cost difference between cash discounting and credit card surcharging. I see cash discounting is allowed often where surcharging is not allowed. All this means is the price on the shelf is the highest possible price for the item regardless of how you pay. The net effect is the same though, if I don't use most credit, I pay a lower price. What is weird though is people don't realize how pervasive discounting is already against the use of general credit cards. Amazon (at least 2%), Target (5%), Kohls (many items, 30%), Walmart (2-3%) all have well established programs that do this on a regular basis, if not for all purchases.

I think what this thread is trying to anticipate is what will happen in the free market with or without further legislation. Keeping to the forum's goals, the net for travel reward cards doesn't look very good unless many merchants decide to pay the higher interchange rates. Even a market change to lower interchange rates (as tmiw referenced) is all bad, the card companies will quickly reduce rebates. If much of Costco's Visa spend was not already on the Citi co-branded card, I would have imagined that other Visa issuers would have created an exception on rewards earned on those purchases. Discover had this .25% earn rate exemption for such retailers, but that does not seem to be the case currently in its current it card option.

The reason why I refer to Costco as a grocery store is because for almost everything else except the specific perishable goods sold in the warehouse, you can now buy them online and use other general cards beyond Visa. Why is that? For practical purposes, Costco is Visa only for groceries and fuel. Yes, I know there are workarounds by buying gift cards. This is also why I think Sam's has been undercutting Costco's grocery prices (as stated by Costco themselves). The merchant fight is about low margin stuff like groceries. I don't see any merchant doing a $4,000 transaction worried much about the cost of the card being accepted. Further, in the Costco example, Visa (and previously AmEx and Discover) were buying "exclusivity". There was no option for the other networks to match the interchange rate and be accepted at Costco warehouses. Still, I remember when Price Club was a cash business. Do I think people will stop shopping at Costco if they didn't take credit? Well, for groceries and food items (and toilet paper), probably not, but I don't think Costco could have grown into so many other categories if they didn't offer consumer and business credit payment options. Costco does acknowledge that those other categories are higher margin (none of this "we sell those items at cost and only make money on the membership fee").

The upcoming Visa/MC interchange increases show the opposite happening, general increases, there is no real free market happening here. Maybe there was a chance in the past with AmEx and Discover, but Discover has pretty much taken itself out of the card innovations business (as it tries to find a buyer for the business), and AmEx is lowering to match Visa/MC rates, but is not trying to do anything more than that.

The discussion of allowing card surcharges (or rather, more widespread at the checkout cash discounting) is interesting. I don't think I would for most categories pay the higher price (especially for day to day spending). I think it can be hard to get above 2 cents redemption value on miles, and the airlines will be in big trouble if card spending dropped dramatically. My thought is the annual fee explosion of these past few years has been anticipating this (with essentially someone paying the annual fee, but not using the card much subsidizing the big spenders). This is just the new subsidizing methodology if we say those who don't use reward credit cards are currently subsidizing those who do.