Why Kroger Banning More Visa Cards Is Bad for Consumers
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Browsing the grocery store can be a huge hassle. You navigate confusing retail layouts with narrow aisles. You run into other people's carts. You wait to move to the front of slow-moving checkout lines. All those annoyances make the moment you can swipe or insert your card and get out of the store feel extra special. Unfortunately, if you want to pay with your Visa credit card at any of the Smith's Food and Drug Store locations, you're going to discover a new hurdle in the grocery store shopping experience: You can't use it.
Smith's is owned by Kroger, which is the largest grocer in the US. It operates 142 grocery Smith's locations — along with 108 gas station centers — in seven states. As of April 3, though, shoppers can no longer use Visa credit cards at any of them. It's the second of Kroger's subsidiaries to stop accepting Visa credit cards. The company's California-based Foods Co. locations ditched them last year. When Kroger announced the Smith's move, the company's CFO, Mike Schlotman, blasted Visa for "misusing its position and charging retailers excessive fees for a long time."
"At Smith’s, Visa’s credit card fees are higher than any other credit card brand that we accept," Schlotman said in the statement. "Visa’s excessive fees and unfairness cannot continue to go unchecked."
Schlotman is referring to Visa's swipe fees. These are the behind-the-scenes costs that merchants pay to the banks that issue cards and the companies that operate payment networks. The average consumer doesn't know much about them, but they are top of mind for retailers, many of whom complain about the weight that these fees carry on their bottom lines. That frustration is understandable. After all, no one likes to pay fees.
However, no matter how frustrated Schlotman and the leadership at Kroger may get each time they incur another fee for Visa, banning Visa credit cards is a bad decision that will create confusion among customers. For savvy shoppers who use cards to earn points, the move is especially annoying. Consider anyone who has the popular Chase Freedom card (No longer open to new applicants). Those card holders are currently enjoying a 5% cash-back bonus opportunity at grocery stores for the entire quarter. If they're regular Smith's customers, I doubt they will worry about the business' swipe-fee costs. Instead, I'm guessing they'll head elsewhere for their groceries.
Kroger said that it "continues to explore options to reduce the cost of accepting credit cards in order to keep prices low for customers," which seems to indicate that the company will consider expanding the ban on Visa credit cards (debit cards are still accepted; their swipe fees are lower) to more of its subsidiaries and more of its locations around the country.
That would be a huge mistake. Successful companies are not built on airing frustrations about the costs of doing business with other companies. Instead, they are built on delivering a higher level of convenience to their customers. Customers who already spent time applying for Visa credit cards don't want to hear Kroger's complaints about paying for the costs of doing business. They want the company to make it easier for them to pay for their groceries.
The good news in all of this? The best credit cards for grocery stores include a lot of non-Visa options (in case Kroger's move spreads to the rest of the industry). The bad news? It seems like plenty of other companies — not just grocery stores — are worrying about swipe fees and looking for a way to limit your ability to pay however you prefer. Stay tuned to TPG for developments on other businesses that may work to restrict payment options.