Kroger joins Walmart, Home Depot in Visa lawsuits
(BII)
Visa has been sued. Again.
Kroger, the major grocery chain that operates 2,700 stores in 35 states, has filed a lawsuit against the financial services company regarding debit card transactions, reports The Wall Street Journal. This suit joins similar ones from Walmart and Home Depot.
Kroger has reportedly been battling Visa since the company told Kroger that its EMV-enabled terminals did not comply with Visa's regulations. The grocery chain wants mandatory PIN-based verification for debit cards, but Visa's policy requires retailers to offer a choice of PIN or signature. As a result, Visa hit Kroger with $7 million in fines and a threat to pull debit acceptance from the chain.
Merchants such as Kroger want chip cards to use PIN-based verification for two main reasons. First, it is far more secure than a signature, which customers can forge under the right circumstances. However, U.S. customers typically prefer signatures because they do not require memorizing a four-digit number.
Retailers also prefer PIN because it reduces cost. Card networks such as Visa earn revenue by charging a fee on each transaction. PIN-based verification provides more options for merchants, which means potentially cheaper transaction fees that could save money in the long term. For context, Visa reportedly charges Walmart approximately five cents more for a signature-based transaction than a PIN-based one.
A lengthy legal battle with Visa could be disastrous for Kroger, as Visa is the most prominent debit card brand in the U.S. with 484 million debit cards in the nation at the end of 2015. For comparison, MasterCard had 183 million. Many Kroger shoppers use Visa cards, as the company tallied $29 billion in Visa debit card transactions in 2015.
The loss of Visa support could alienate customers and affect Kroger's business, and Visa is likely aware that Kroger wouldn't let hat happen. So essentially, Visa is in the driver's seat and can continue to hit Kroger with penalties.
However, the slew of lawsuits from major retailers could spur reform in the U.S. credit card industry. Most likely, these lawsuits will all end in settlements, but increasing tension could convince regulatory bodies to examine the situation, which could lead to future reform. This has happened in other markets such as Canada, where retailer complaints created government pressure that ultimately caused card networks to reduce their fees in late 2014.
To receive stories like this one directly to your inbox every morning, sign up for the Payments Briefing newsletter. Click here to learn more about how you can gain risk-free access today.
More From Business Insider
