Walmart went nuclear and banned Visa from Canada

Walmart's decision was both surprising and long overdue

Sometimes, a bold strategic move can be both surprising and long overdue. Walmart's decision this week to ban Visa from its Canadian stores is one of those instances.

Walmart and Visa have been blood enemies for as long as anyone can remember. And Walmart holds grudges; it's part of its corporate culture.

Walmart and Visa have been having an argument about interchange for decades. Visa's argument — that Walmart pays a lower interchange rate than anyone else, thanks to its amazing volume — is a fair one. But the only meaningful threat in these negotiations is to say that you'll stop accepting the card. But how meaningful? Given that Visa is the most popular payment card in North America, it would be ridiculous for Walmart to carry it out. It's the retail equivalent of mutually assured destruction. Visa's likely revenue loss would be massive, and Walmart might lose some of its Visa-carrying shoppers, who would take a short trip to Target.

Hence, the implied threat was never taken seriously. And a threat that's not taken seriously isn't much of a threat. Walmart decided it needed to shake Visa up and do the unthinkable. Doing it in Canada is sufficient to stun Visa, but it's not nearly the revenue hit of doing it in the U.S. Clever move.

Walmart's actual statement, though, went a bit overboard in the "we only did it for our customers" department.

"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. 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," the statement started.

Funny, I don't recall hearing a lot of this business about "Walmart’s purpose is to save customers money so they can live better" at Walmart's last stockholders' meeting. I must have blacked out during that portion of the CFO's remarks.

Walmart's statement then went in for the kill. "To ensure we are taking care of our customers’ best interests and delivering on our promise of saving customers money, we constantly work to reduce our operating costs, including credit card fees. Unfortunately, Visa and Walmart have been unable to agree on an acceptable fee for Visa transactions. As a result, we will no longer accept Visa in our stores across Canada, starting with our stores in Thunder Bay, on July 18, 2016.  This change will then be rolled out in phases across the country. Customers will continue to be able to use other forms of payment including cash, Interac debit, MasterCard, Discover, and American Express."

And in case the nuanced subtlety of this statement eluded anyone, it ended with: "We sincerely regret any impact this will have on our customers who use Visa and remain optimistic that we will reach an agreement with Visa."

Well-founded optimism, people. The question is: How far will both sides take this bluff? Will Visa cave in Canada — that would be my bet — or hold its ground? And if Visa holds firm, will Walmart just make good on its threat and keep Visa out of Canada? Or will Walmart raise its own bluff and threaten to take away the U.S. market, too? Sure, they already cut a U.S. deal, but Walmart can use the Canadian talk blowup as an excuse to renegotiate other deals.

Visa and Walmart are two companies filled with executives used to getting their way. This battle has the potential to have impacts for all retailers and all card brands. If Walmart wins, do you for an instant think it won't pull this on MasterCard, Amex and others? If Walmart wins, don't you think that Target, Home Depot, Macy's and every other major chain will try the same thing?

That's why the pressure is so extreme on Visa to hold firm. I personally think it will cave, for the simple reason that it can't afford to give Walmart a reason to escalate this further.

Either way, though, it will be an interesting battle to watch.

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