After battling it out in public for months, Walmart and Visa Canada have decided to make amends. Walmart has already started accepting Visa cards, after banning the network in all of its stores in Manitoba and Thunder Bay since last summer.
While the chattering classes speculate who buckled and why, the truth is very few people actually know the outcome of the negotiation.
What we do know, is that Canadian consumers are the winners. Whether Walmart saw declining revenues in its stores, or Visa saw declining purchase volume on its cards, or both, ultimately both Walmart and Visa were persuaded by consumer preference.
The truth is, Visa is replaceable and so is Walmart. A lot has changed since Visa dominated the Canadian credit card marketplace. MasterCard is accepted virtually everywhere Visa is, and consumers can choose from a large number of MasterCard issuers – with some banks offering both, such RBC, TD and CIBC.
That said, battling it out in the grocery store is no simple task either. For every Walmart there’s a Loblaw, Sobey’s, or Metro on the opposite corner. If someone’s looking to maximize their Aeroplan miles on their Visa card, they can get their bananas elsewhere.
I’m guessing both Visa and Walmart came to the conclusion that the battle was bad for business. But there is a corollary benefit to consumers who enjoy their credit card rewards. Walmart proved what Visa and MasterCard have argued all along – interchange fees do not need to get regulated.
Walmart, like every other Canadian retailer, has the choice to simply stop accepting Visa or MasterCard. No one is forcing them to accept both networks or either network. For those members of the Canadian Federation of Independent Businesses (CFIB) who argue independent merchants are too small to have any leverage, all the members of the CFIB can boycott Visa or MasterCard together if they’d like.
Moreover, the very fact that retailers are not willing to terminate their relationship with Visa or MasterCard over 2% in fees, proves that Visa and MasterCard provide 2% worth of value. If they didn’t, every retailer would ditch them.
Merchants who want regulators to manage interchange fees, are really doing battle with consumers, not Visa or MasterCard. Retailers know that if they stop accepting credit cards, they’ll upset consumers. So they want regulators to do the dirty work for them – regulate interchange and still accept credit cards.
The problem is, interchange has no more basis to be regulated than commercial rents. Just like interchange, merchants have to pay rent in order to deliver their goods to consumers. They have to pay even higher rents when they place their stores in areas consumers typically prefer. Some businesses can afford the cost of rent, others can’t. Interchange fees are not different.
That said, would retailers in the downtown core of Toronto or Vancouver ever claim rent should be regulated? The idea is laughable, and so is regulating credit card interchange. Merchants have alternatives. They just don’t like the fact that consumers have chosen credit cards as their preferred method of payment, thus handing over tremendous pricing leverage to Visa and MasterCard.
As we’ve said before, the biggest beneficiaries of higher interchange are consumers, not Visa, MasterCard or the credit card companies. When you get 2% on your cashback credit card, it’s because MasterCard charged merchants 2% in interchange fees. If that’s the case, it’s likely retailers have already increased their prices to reflect the 2% cost increase on credit card transactions.
So what’s the problem then? If retailers can pass the cost of interchange on to consumers why the whining? It’s because retailers get charged different interchange rates depending on their volume. Smaller retailers get charged more than larger retailers. As a result, larger retailers pass on a lower cost to consumers than smaller retailers, which helps larger retailers keep their prices lower than those of small retailers.
But big retailers have lower costs than smaller retailers in almost all facets of their business because of their scale. No small business buys their merchandise at the same price as Walmart or Costco. Does that mean the government should step in and force Nike to sell their shoes at the same cost to all shoe stores regardless of size? The argument would be laughable.
Regardless, we’re happy to see Walmart and Visa coming to their senses and giving Canadian consumers what they want – choice.