Jun 14, 2016

Walmart Drops Visa, and It’s a Brand Win for Walmart

Walmart’s dispute with Visa is a brand win for Walmart.

On Saturday (June 11, 2016), Walmart Canada announced it will gradually stop accepting Visa cards at its Canadian locations. The company stated, “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 … As a result we will no longer accept Visa in our stores across Canada.”

Visa is in a no-win situation, because Walmart’s move, while provocative, is on brand. Walmart is fulfilling its purpose, and consumers will support them.

Walmart Is Fulfilling Its Purpose

In its press release Walmart led with its brand promise, “Walmart’s purpose is to save customers money so they can live better. We are committed first and foremost to this purpose, which requires us to keep costs as low as possible.”

Walmart may be a bully, but you always know where the company stands. It will do everything in its power to reduce costs to pass savings onto customers.

Walmart has done the math. They can live without Visa, but is the reverse true?

Customers Choose Walmart First, Not Visa

Visa’s response was feeble, “The company ‘regrets’ Walmart’s decision, and that it will have a ‘negative impact’ on Walmart’s shoppers.”

Meh. I don’t agree. Consumers don’t make purchase decisions based on the credit card in their wallets. Customers buy what they want and need, especially if it’s on sale. Sure, they may prefer to use one card over another, but a deal is a deal. The brand loyalty is to Walmart, not Visa.

It may seem like an inconvenience at first, but consumers are highly adaptable. They’ll stick with Walmart.

Credit Cards Are Undifferentiated

Walmart is not the first major retailer to limit the credit cards it accepts.

Costco only accepts MasterCard. No Frills doesn’t accept Visa or American Express. And many retailers, including Loblaws, don’t accept American Express because of its fees.

Consumers are conditioned to accept that retailers don’t accept all forms of payment. They get it. They accept it. They continue to buy.

This is a branding problem for credit card companies. They may offer loyalty programs and incentives, but at the end of the day the credit card companies are middlemen. Their services and value propositions don’t offer enough incentive for customers to choose them first.

Visa Is In a No-Win Situation

Walmart left the door open to negotiate, “[We] remain optimistic that we will reach an agreement with Visa.” But this leaves Visa in a no-win situation.

Visa can further reduce its fees and match pricing models offered by MasterCard and Amex, but this has three negative outcomes:

  1. Reduced profitability
  2. Increased commoditization of the category
  3. Sets a precedent for other retailers to negotiate with Visa

On the other hand, Visa can stick to its business model and let Walmart go. Again, the negatives are palpable:

  1. Loss of $100 million in transaction revenue per year
  2. Loss of brand loyalty and market share as Walmart shoppers adopt alternative payment methods

Walmart is strengthening its brand at another company’s expense. It’s a bold move, and I have to say, I like Walmart’s strategy.

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