
Credit-Card Backlash Mounts as Kroger Weighs Expanding Visa Ban - molecule
https://www.bloomberg.com/news/articles/2018-07-30/credit-card-backlash-mounts-as-kroger-weighs-expanding-visa-ban
======
kccqzy
Relevant: due to _Ohio v. American Express_ , merchants are generally unable
to steer customers from using a particular card. For example if a merchant
accepts Visa at all, the merchant has to accept all Visa cards, not
selectively choose the lower-fee cards; the merchant also cannot tell the
customer to use Discover instead to save costs and only use Visa if that's the
customer's only card. This anti-steering provision is originally invented by
AmEx and now all four major networks have this requirement. And the SCOTUS
just ruled that anti-steering provisions do not violate anti-trust
regulations. So the only possible recourse is to outright stop accepting a
particular payment network.

[https://www.supremecourt.gov/opinions/17pdf/16-1454diff_6579...](https://www.supremecourt.gov/opinions/17pdf/16-1454diff_6579.pdf#page2)

~~~
stickfigure
It has been asserted elsewhere in this HN discussion that Visa charges
merchants higher amounts for transactions with higher-end rewards cards.

Assuming this is true, and these anti-steering provisions prevent merchants
from discriminating, what prevents Visa from issuing cards with 200% fees?
What's holding the cash back level at a mere 1-2%?

~~~
so33
Competition with MasterCard, Discover, and Amex should hold them back from
doing this, because at such punitive rates merchants would definitely stop
accepting them.

I believe Amex is only able to get away with its highest-in-the-industry rates
because of the association of Amex cards with business expense accounts and
high income earners. This is changing now
([https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7...](https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7d11))
especially after years of competition from banks like Chase, who have been
working on creating what is essentially a structural clone of American
Express’ network ([https://www.reuters.com/article/us-jpmorganchase-
creditcards...](https://www.reuters.com/article/us-jpmorganchase-creditcards-
insight/jpmorgan-uses-its-might-to-cut-costs-in-credit-card-market-
idUSKCN0R80B620150908)).

~~~
jackweirdy
Some of the Amex fee changes will likely have been as a result of a nudge from
the EU ruling that includes their double-branded cards (e.g. British Airways
AmEx) in the 0.3% fee cap in Europe which previously only affected visa and
MasterCard.

------
ashishb
[https://www.bostonfed.org/publications/public-policy-
discuss...](https://www.bostonfed.org/publications/public-policy-discussion-
paper/2010/who-gains-and-who-loses-from-credit-card-payments-theory-and-
calibrations.aspx)

" On average, each cash-using household pays $149 to card-using households and
each card-using household receives $1,133 from cash users every year. Because
credit card spending and rewards are positively correlated with household
income, the payment instrument transfer also induces a regressive transfer
from low-income to high-income households in general."

~~~
smileysteve
I don't buy this because it discounts the high costs of cash controls.

Cash has high costs that likely make electronic forms of payment competitive.

You have

\- Employees skimming the till;

\- Theft insurance for a safe, the nightly amount in the safe

\- Managers balancing the cash registers with change/safe

\- Armored trucks picking up the money (2-3 men guarding the transfer)

\- Banks processing the money

\- Employee time and frustration ensuring they didn't come up short

tldr; It takes one armed robbery or employee malfeasance before ~2% fees seem
very much worth it to reduce cash on hand.

~~~
caf
If this was the case then merchants would happily encourage people to use
cards rather than cash.

~~~
alkonaut
Outside the US merchants almost invariably encourage the use of cards. Zero
places here are cash only (not even a hot dog stand) but tons are explicitly
cash free. [edit: in _some_ places.]

The big savings come when you have zero cash to deal with. Then you have no
counting/change/armed transport/security issues at all.

~~~
llewey
That is definitely not true in Germany. There were many places that only
accepted cash while I lived there.

I just spent 2 weeks in Spain and there were many places I tried to eat that
were cash ø ly.

In Chinatown in London, as well, many places are cash only.

"outside the US" is a big place, be careful to be more specific.

~~~
alkonaut
I know - I went to Berlin and noticed Taxis wanted cash and would not accept
cards. Was like traveling 20 years back in time.

I did not mean to say all places outside the US

~~~
raverbashing
To be fair the only place where I saw taxis accepting cards as a rule was NYC

Practical, still a bit weary though especially without EMV readers

~~~
Jommi
Go to any place in northern Europe and it's basically only card.

~~~
mrweasel
Denmark is pretty much only cards, but debit cards at this point, well above
80% for retail is card payments.

I normally have a few may 100 to 200DKK in my vallet, because the credit/debit
card system do still fail. I haven't run into anything in the last few years
where I could pay with card or mobile payment.

~~~
llewey
Between my debit card and Mobilepay, I haven't used cash in nearly 2 years
living in Copenhagen so I finally ditched my leather bifold wallet and made a
slim card holder out of an IKEA bag. It's only been a month or so, but so far
no regrets.

------
sorenbs
In Denmark we have a national payment system called Dankort. All issued Visa
cards also work as Dankort. Transaction fees on Dankort is one tenth of visa,
and all payment terminals default to Dankort. This saves Danish retail a lot
of money while still ensuring they we can buy stuff online and when traveling
using visa.

~~~
kasey_junk
To be clear that’s due to laws in Denmark that require its acceptance and
granting it a particular monopoly status?

I’d be curious what the issue rate between the Dankort & the Kroger Plus Card.
It’s conceivable that Kroger has the market heft to do with selling power what
Denmark did with law.

As context Kroger employees about the same number of people as 1/10th of
Denmark though I have no idea how that translates to ability to change card
usage.

~~~
adventured
You can't safely inconvenience all your customers even if you're at Kroger's
scale. Walmart is extremely eager to kill you if you're Kroger, to gain market
share in groceries. It leaves no safe opening to upset a large share of your
customers: many will go across the street to Walmart.

~~~
Marsymars
Walmart has had similar spates in the past. They stopped accepting Visa at
various Canadian stores last year when negotiating rates with Visa.

------
bit_logic
This seems like a missed opportunity for Google Pay and Apple Pay. Before
smartphones and NFC, it would've been too much for every merchant to make
their own card, nobody is going to carry that many cards.

But imagine if Target, Walmart, Best Buy, etc. made store cards and they all
integrated with Google/Apple Pay. When a customer enters the store, the app
could automatically pick the right card. Google and Apple just needs to be
cheaper than the rates charged by Visa/MC/Discover/Amex.

For example, I have a Target Redcard. Why isn't this card integrated with
Google/Apply Pay? They've already setup the financial infrastructure to extend
credit to customers. It should be a small step to add this to Apple/Google
Pay.

~~~
justinph
Target's RedCard is a significant advantage they've built over all their
competitors. They don't have to pay the fees, customers get a discount, and
they get easy access to the data on your purchases. I'm surprised more
retailers don't do it.

~~~
burkemw3
Many retailers have their own cards: [https://wallethub.com/credit-
cards/store/](https://wallethub.com/credit-cards/store/)

~~~
WorldMaker
It's easy to forget too that the history of credit cards was that they started
as _store credit_ cards, and centralized and inter-operated from there. When
credit cards first started you would have one per store only usable in that
same store.

(Also note how gift cards/stored value cards/"prepaid credit" cards recently
seem to be following a similar trajectory. It is somewhat fascinating.)

------
jpatokal
In Australia, despite the credit card companies and banks fighting tooth and
nail against it, it's legal for merchants to charge credit card fees _and_ the
fees have to be proportionate to the actual merchant cost.

[https://www.accc.gov.au/consumers/prices-surcharges-
receipts...](https://www.accc.gov.au/consumers/prices-surcharges-
receipts/credit-debit-prepaid-card-surcharges)

Unsurprisingly, nobody uses AmEx or Diners here, because nobody's keen on
paying 2% surcharges.

~~~
stephen_g
Plenty of places charge no fee for Amex. Usually bigger ones like Woolworths,
Coles, David Jones, etc.

I use it whenever I can (for the frequent flyer rewards), and I expect quite a
lot of people do since they do billions in revenue over here (but
unfortunately have managed to pay no tax in Australia for several years
according to investigative journalist Michael West [1]).

1\. [https://www.michaelwest.com.au/american-express-pays-no-
tax-...](https://www.michaelwest.com.au/american-express-pays-no-tax-on-
multibillion-dollar-australian-operation-for-seven-years/)

~~~
jpatokal
Oh, I used to use Amex here myself, but no-fee Amex acceptance really is
limited to the thousand pound gorillas who can extract the best rates for
themselves. Then the banks gutted consumer earning rates and I got tired of
swapping between Amex and Visa in Google Pay, so I changed to a Visa with slow
but steady points everywhere.

------
lowpro
I hate credit card fees as much as the next guy, but to be fair my credit card
was the only way I could pay for things in Asia since I just lived there for 6
months. If I had used cash, the only ATM near me stole my friends debit card,
and multiple people I know were robbed and pick-pocketed. My credit card
insulated me from those risks, which I was fine paying an extra 1% for.

Now that I’m back in America the risk is far less, but what alternatives in
America are there? I hope the payment apps/wallets become universal but we
definitely aren’t there yet.

~~~
kitsunesoba
Yep. The US is reasonably safe in this regard, but I’ve had credit cards
skimmed a handful of times. These cases were dealt with with little more than
a quick call to custom service, but had it been my debit card that was
skimmed, it would’ve been bad news.

For this reason I carry only a small amount of cash (just enough for cash only
bars/restaurants) and never carry my debit card. My primary payment method is
credit card with an increasing percentage through Apple Pay.

~~~
donaltroddyn
My own experience is that the United States is an extremely risky place to use
a credit or debit card, and it's the only place where I've ever had a credit
card skimmed (from living and travelling around Europe and Brazil) - three
separate times. It's also the only place where I could almost never make
contactless or chip+pin payments, and had to swipe and sign.

~~~
maxerickson
Typical card transactions now use chip with no pin. They maybe collect a
signature electronically (but I think this may be mostly to make the customer
happy).

Swipe is far from dead though.

------
wcoenen
A lot of problems would go away if all merchants (voluntarily or by law)
explicitly charged their payment costs to the customer. Both for card and cash
transactions, because cash handling isn't free either.

The customers using high reward cards would then soon discover that they are
just paying for those rewards themselves, and the free market would quickly
push everyone to the most efficient payment systems.

~~~
pwg
> A lot of problems would go away if all merchants (voluntarily or by law)
> explicitly charged their payment costs to the customer.

At least in the US, the contract the retailer signs with the CC processor to
be able to accept CC's explicitly bans passing the card fees on to the
customer as a specific line item in the receipt.

Which really translates to the merchant increaseing their prices by 1.02x to
compensate for the 2% (avg. estimate) fee the cards charge. So the customer
still pays, but they do not directly see what part of the price goes directly
to the payment network.

~~~
_archon_
What prevents a seller from giving a cash discount line item for cash
transactions?

~~~
pwg
Nothing, anymore, in the US at least. A court case a few years back resulted
in retailers having the right to offer an "X% off if paying with cash"
discount to customers.

But they are still barred from doing the reverse (line item for X% more for CC
transaction on the receipt).

------
chiph
I like my rewards Visa more than I like Kroger. Good luck with that ban, guys.

~~~
bostonvaulter2
I wish credit card fees would come down, they're ridiculously high and
increase the price of doing business, which increases the prices you pay for
items.

~~~
cycrutchfield
Most people that care get a substantial portion of those fees back (either as
cash or rewards). So in reality, those fees are a tax on the poor, the un-
creditworthy, and the financially illiterate.

~~~
viraptor
Do you really? Maybe it's country-specific, but in Australia there are no
programs which give you that many benefits. Likely the best are the airline
points, and even then they don't cover close to the payment processing fee
total.

~~~
SyneRyder
There's been a recent change in Australia, the Reserve Bank put a cap on the
maximum interchange fee credit card companies can charge in Australia (capped
at 0.8%). As a result, many of the cards that earned the best rewards have
been scrapped. I had an AmEx card that was good for earning airline points,
the bank cancelled the card after the Reserve Bank ruling.

[https://www.smh.com.au/business/banking-and-finance/rba-
chan...](https://www.smh.com.au/business/banking-and-finance/rba-changes-set-
to-cut-credit-cut-frequent-flyer-rewards-20151203-gled44.html)

------
jlarocco
I'm not sure I understand why this is a big deal all of the sudden. Don't
retailers already account for these costs when they're choosing prices?

~~~
sokoloff
The average profit margin for a mainstream grocer (like Kroger) is 1-2
percent. It's a low-margin, high-volume business.

Said differently, it's exactly the type of business that I'd expect to care
deeply about transaction fees.

~~~
rileymat2
Is this the overall profit margin, or is it what it is once it accounts for
spoilage and other losses (theft ect.)?

I ask, because 3% cc fee from a 2 percent margin is huge, but a 3% fee from a
80% margin that averages out to 2% because of spoilage is much smaller.

~~~
sokoloff
Gross margins are around 20%. Net margins are 1-2%.

------
cagenut
Good? I hate the asinine secondary market of "points". Just don't take the
money in the first place and then we don't have to sort out how I can reclaim
it somehow.

~~~
Bramble
So you hate getting something back for choosing one payment method over
another when there's no indication that retail stores would lower their prices
if credit cards (and their transaction fees) were wiped out?

~~~
majormajor
There is some indication of that - gas stations have seemed to be leading the
push here, with "cash-only" prices, but you'll also see places with CC fees or
minimums (as much as the providers try to crack down on this).

~~~
ghaff
This goes through cycles every few years. We seem to be in the cash discount
part of the cycle now. Then stations discover they don't like losing customers
who want to pay by credit but are getting "ripped off." Admittedly apps may
make things different this go-round.

------
amf12
At this point they should consider investing in their own debit-like card
issued by themselves. You prepay it with $100, you get extra 5% loaded on the
card, and additional discounts for using it. The retailer saves on per
transaction fees since they will have to only pay it once for $100.

~~~
finaliteration
This is basically the approach Amazon and Starbucks have taken. Every $25 card
reload via the Starbucks app probably adds up to a lot of money in saved
transaction fees.

~~~
nandemo
AFAIK such cards make money primarily on breakage, i.e., points that people
buy but do not use.

~~~
finaliteration
That would make sense. There’s also the customer loyalty factor. I use the
Starbucks app a lot (probably too much if I’m being honest), and all of the
“stars” and “challenges” definitely work in terms of gamification.

PS you can pry my caramel macchiato from my cold, dead, jittery hands.

~~~
so33
It’s win-win: Starbucks keeps their most loyal customers loyal and likely uses
the “unspent” money to subsidize the loyalty program.

~~~
extrapickles
I doubt they are able to use that money without it showing up as a loan
(oversimplification).

While they get $25 in cash, they also get $25 in obligation/debt to you (eg:
they owe you $25 in products). If you don’t use it, after a jurisdiction
dependent time, it goes to the jurisdictions treasury (at least in some
areas). Or in other words they can’t count that $25 as money they have until
you the use credit.

It’s probably more complicated than this as I’m not an accountant.

~~~
finaliteration
I know that typically with gift cards the dollars fall into a "deferred
revenue" account until they are actually realized as a sale against a
product/service tied to an income account. You can say "We have X amount in
deferred revenue" but can't actually show it as recognized until certain
things happen (VSOE rules for software, etc). In the case of Starbucks I think
it would be similar, though I'm not sure if using their app for payment
qualifies as a "gift card" in the same sense or not.

I believe there are also different laws in different states and jurisdictions
related to "breakage", e.g. some states don't allow gift cards to expire
whereas others do, so in the latter you can forecast breakage upon set dates
whereas in the former it's a lot harder to do because you basically "owe" a
product or service indefinitely.

PS I am not an accountant but I've worked with a lot of them via backend
billing systems implementation and development.

------
m0rphy99
The penetration of credit cards into everyone's daily life is already too
deep. Let's face it, at this point they already got everybody well locked up.
Any attempts to resist from just a few companies here and there are really
just futile.

~~~
kalleboo
Not really. Smartphone apps can be a game changer since they require so little
infrastructure to adopt. Look at Venmo. In Sweden a banking revolution is
taking place where an app similar to Venmo that instead was developed by a
consortium of banks has quickly gotten mass adoption, recently also including
at retail. I bought strawberries from a street stall using my phone.

~~~
clan
The exact same is happening in Denmark. The huge players are under fire from
new fintech startups.

It has been amazing to see how fast such apps gain penetration in the market.

~~~
mrweasel
Honestly I can't think of a single fintech startup in Denmark that's is any
competition to the banks and card companies.

The only two apps that really have any penetration is MobilePay, but that's
the large banks, and eDankort, but that's NETS.

There are a fintech startups, but they all work with or for the large players.

~~~
clan
Due to regulations I think it is difficult to find any fintech which a small
bootstrapped startup in the traditional sense. Some bank tie-in is needed. And
by that I might be overloading the startup moniker.

My point was that they're still tiny compared to the giants such as AmEx or
Visa. And it shows that the old players can be unseated faster than expected.

------
mhb
Maybe this is crazy, but it seems like Google or Amazon could compete with a
credit card network with lower merchant fees. Besides being great, it would be
great PR.

~~~
mxuribe
Technically, i'm sure you are right. But, to give these guys even more of my
data - in this case my other spending habits? Ugh.

------
a3n
In the early days of the Republic, individual Banks used to print their own
currency. It was all dollars, but it was produced by different companies.

Now our different dollars are plastic or even just ephemeral, the difference
being that they may not be universally usable. Something's definitely wrong
here.

------
lifeisstillgood
The article mentions technological alternatives - what are they? There is no
way blockchain can fill this void, so .... what can do electronic payment if
not the giant card networks?

interesting problem

~~~
alkonaut
Many countries have (as yet) free electronic transfer services (Vipps in
Norway, Swish In Sweden etc). Originally used mostly for p2p transfers, it’s
showing up more and more as an accepted payment form. Obviously these systems
also have costs they need to cover, but there is a good chance they will
remain much lower than card fees. The big issue with them is that they are
national. Even if every individual and many businesses in Norway have Vipps,
you can’t use it to pay in a Danish web shop.

~~~
lifeisstillgood
A glance at wikipedia makes this a mobile app that requests transfers from
bank account to bank account via a participating bank.

Which is basically replacing visa with the Norwegian bank.

I guess I have never wondered about it before, but i am surprised there is not
a international common payment request protocol - "move 100 from a to b". Each
bank could have their own gateway but as long as it understood the protocol
...

------
8bitsrule
Maybe swipe will save us from a cashless society. Else ... don't want to think
it.

------
exabrial
Does this also include debit cards?

------
arisAlexis
bitcoin solves these kind of problems. and yes merchants can auto-convert so
they don't need to speculate on price.

------
ebbv
Kroger bought out a local chain here in Michigan (Hiller’s) that was way
better than Kroger and then laid off the Hiller’s employees and killed the
chain. I’m never gonna feel any sympathy for Kroger.

------
devoply
> over the $90 billion they pay in swipe fees every year.

> Kroger's revenue was 122.7 billion USD in 2017

That makes little sense and makes me wonder why Kroger does not issue its own
credit card. Credit cards are a rent-seeking racket that eat lots of profit.
Everyone knows it but no one knows what to do about it.

~~~
entee
I wonder if Apple and others that can generate "soft" credit cards could make
this (essentially 1 card per merchant) work pretty easily and seamlessly for
consumers. I don't know what underlying infrastructure they have though, are
they still heavily dependent on Visa/Mastercard/Amex networks under the hood
to do the dirty work or do they have a parallel system?

~~~
smileysteve
Your summoning of Apple is funny because one reason many merchants disabled
NFC is because Apple tacked on an additional fee for those purchases.

~~~
jeffwilcox
Apple gets a cut of the intercharge fees that the banks charge (much higher in
the US than overseas), but it is not an additional fee to the merchant last I
researched.

A lot of the NFC issues were either competing tech, payment networks not being
ready, people not understanding their system configuration, _or_ intercharge
fees being different for that whole category of fees (not specifically Apple
Pay).

------
westoque
These kinds of problems (swipe fees, etc) is where I believe cryptocurrencies
shine.

Having a fee payment which is reasonable and fast confirmation times would
solve this problem immediately removing the need for third parties.

~~~
Nursie
This is where government regulation shines - 0.3% max fee in the EU

~~~
pandasun
Ah that explains why I was put on hold for 1 hour and 20 minutes when I called
Visa Customer Service in France.

~~~
Nursie
Visa have a customer service line? (Serious question)

The only time I've ever interacted with them directly was a job interview for
a role in their UK office in Basingstoke (I didn't take it).

If I had a problem with my card I'd call my card issuer. Not VISA. Why would
you have to talk to them?

