The Shot Heard 'Round The World: Walmart Tentatively Terminates Visa Canada

Last updated on January 4, 2018 Views: 831 Comments: 1

Buried in a press release this weekend, Walmart Canada announced it “will no longer accept Visa in our stores across Canada.” Walmart’s stated reason is that it has “concluded the fees applied to Visa credit card purchases remain unacceptably high.”

That’s a very public war between two corporate behemoths.

However, there is reason to believe that Walmart’s decision is not final, and that it is using the announcement as a means to apply pressure on Visa during what seems to be an intense and bitter negotiation. In fact Walmart appears open to reversing its decision. Otherwise, why the statement from Walmart, in the same press release, that it remains “optimistic that we will reach an agreement with Visa.” This is not a done deal.

Moreover, the fact that Walmart is slowly phasing-out Visa, region by region, further indicates it’s applying a pressure ploy – it’s leaving Visa plenty of time to reverse course before Visa or Walmart feel any pain. Hence the announcement June 11, for a decision that will only impact Walmart stores in Thunder Bay July 18, with no commitment to a timeline thereafter.

Walmart’s employing the North Korean and Iranian nuclear negotiating tactic. Threaten armageddon, demonstrate you may just be crazy enough to do it with tough talk, a few tests and trial balloons, dare the opposing party to call your bluff, and see what trade-offs you can get to stand down. It worked for North Korea. It worked for Iran. It may just work for Walmart.

Why Now?

We’re guessing that what Walmart is really reacting to, is the deal Costco Canada received from MasterCard. We believe MasterCard is only charging Costco somewhere around 85 basis points of interchange. If Visa is charging Walmart Canada its Grocery interchange fee of 1.33%, that’s half a percent (.50%) more than what Costco is being charged.

Walmart’s profit margins are only 3%-3.5%, so the impact of .5% on its bottom line is significant. Perhaps more important, is the impact it might have on Walmart’s price competitiveness, relative to Costco’s.

Walmart Canada is estimated to generate about $23 billion in annual sales according to the Globe and Mail. Canada’s total payments on plastic according to the Nilson report is $569B. Walmart represents 4% of all Canadian electronic payments. Visa represents 41%.

As a result, we can assume that Walmart represents somewhere around 4% of Visa volume, although we guess it’s a little less given the higher weighting of purchase volume from Visa premium travel cards, where there is likely less shopping done at Walmart than the national average.

Will Visa Cave?

What Visa will have to evaluate is the cost of losing around 4% of its volume, compared to the cost of losing whatever margin Walmart is negotiating, multiplied times the number of other merchants that will ask for the same deal if Visa acquiesces. Remember, if Walmart gets a deal for its $23 billion in revenues, so will Loblaw with its $31 billion in revenues, and Sobeys with its $24 billion.

If Visa only loses Walmart, it will lose approximately $12.6 million in revenues ($23B Walmart revenue X 4% Visa share X 1.37% Visa interchange fee).

If Visa lowers its interchange rates to 90 basis points (but does it for Walmart, Loblaw and Sobeys) it loses $14.6 million in revenue ($78B Walmart, Loblaw, Sobeys revenues X 4% Visa share X 47bp drop in Visa interchange fees).

Of course, losing Walmart will have additional impacts on Visa as well. Some people who currently use Visa as their primary credit card, will stop using it entirely, preferring to use a card accepted everywhere. Moreover, some banks will start to push their MasterCard offering more aggressively, especially to the mass market – compounding Visa’s losses. There are plenty of alternative credit cards in Canada to choose from.

Perhaps the biggest impact is on rewards programs. If Visa caves and drops interchange rates for Walmart, which we assume would then drop interchange rates for Loblaw and Sobeys, credit card interchange revenues would be dramatically impacted. As a result, the ever-so popular credit card rewards programs, which are funded by interchange fees, would be threatened.

Of note will be cashback credit cards that offer supercharged discounts at grocery stores. Not to mention travel cards that offer point multipliers at gas, grocery and pharmacy stores. They would very likely have to reevaluate their programs if the revenues they received from those categories decreased by 40 basis points.

Why Visa Canada and Not MasterCard Canada?

We believe there are four reasons Walmart has chosen to pick a fight with Visa Canada and not MasterCard Canada at this point.

First, Walmart Canada has a Walmart MasterCard credit card. It can’t terminate its partnership with MasterCard without also impacting its own credit card and rewards program.

Secondly, MasterCard represents 22% of all electronic payments, as compared to Visa’s 41%. Lowering Visa’s interchange fees will have twice the impact of lowering MasterCard’s fees.

Third, Visa’s published interchange rates are higher than MasterCard’s for large merchants.

Fourth, while in the United States, Costco has direct wholesale competitors like Sam’s Club (owned by Walmart), and BJ’s Wholesale, in Canada there is no alternative to Costco Wholesale. So while Visa and MasterCard give “wholesale” clubs a special interchange rate in the U.S. that Walmart can benefit from through Sam’s, in Canada the parallel does not exist.

By giving Costco Canada an advantageous discount rate, MasterCard has given Costco Canada a competitive advantage that directly competes with Walmart Canada. It seems as though Walmart Canada is looking to level the playing field to retain its competitiveness versus Costco Canada.


Regardless of how this plays out, what we like about it, is that’s it’s being handled and negotiated without regulation. Walmart is large enough to throw its weight around, and so is Visa. This proves Visa’s argument to Canadian regulators all along, that it does not have a monopoly and retailers are free to elect not to accept Visa payments if they so choose – thus no regulatory interference is required. The invocation of this threat alone, might have long term impacts on the ability of Canadian retailers to request regulatory interference to  cap interchange rates – an interesting unintended consequence for all.

Article comments

1 comment
Dru says:

Battle of the heavyweights.