đ
News Alert Kroger and Visa Part Ways Why They Stopped Accepting Visa - YouTube
Channel: CCSalesPro
[0]
News Alert: Kroger and Visa Part Ways.
[1]
What happens if large established nation-wide
retailers and brands stop accepting Visa?
[8]
Are their sales going to plummet?
[10]
Are they going to go out of business?
[11]
Are they going to lose billions of dollars?
[14]
Nobody really knows.
[15]
Visa has been around for a long time, but
Kroger is about to find out.
[20]
Now before I get into that, I have to explain
because if you are like me, Kroger you probably
[25]
thought of as like a mid-size company.
[28]
Well, Kroger is actually a conglomerate that
has purchased you know thousands, they have
[33]
2,778 locations nation-wide because they purchased
all these different grocery stores.
[39]
So they are actually the third largest employer
in the U.S.
[42]
You have Walmart.
[43]
Then you have Amazon and then Kroger.
[46]
So Kroger is humongous.
[49]
What happened is Kroger decided to stop accepting
Visa at their subsidiary in California, a
[58]
very large business there in California.
[60]
They said, âWeâre not accepting Visa any
longer.â
[63]
Now this is going to have huge ripple effects
across the industry, if as Bloomberg News
[68]
has reported, they are going to roll this
out nationwide.
[72]
That will have huge ripple effects.
[75]
Before I get into the ripple effects and how
this is going to effect you and your business,
[78]
your merchant services business, I want to
talk about why Kroger decided to do this.
[83]
So Iâm going to try my best to give you
some numbers.
[85]
If you look at the blog article on ccsalespro.com,
you can actually see the numbers, but Iâll
[89]
give them to you from memory and try to get
as close as I can.
[92]
Last year, 2017, Kroger did about 122.66 billion
dollars in revenue, but they only made 1.907
[103]
billion in profit.
[104]
Thatâs a 1.55% margin.
[106]
So you know out of every dollar that Kroger
gets in sales, they are making 1.505 cents
[116]
out of every dollar.
[117]
Thatâs very, very little.
[119]
When your margins are that low, interchange
fees become a really big problem.
[123]
I mean keep in mind the average interchange
cost in the U.S. is 1.7%.
[127]
It is a lot lower for a grocery store, especially
one like Kroger, but it still is a very significant
[132]
number.
[134]
The reason that Kroger decided to drop Visa
is that if you think about it, what is the
[139]
only reason that you wouldnât want to drop
Visa?
[142]
Well, Visa costs money as a business.
[144]
So for a business to not accept Visa, the
only reason they wouldnât want to do that
[147]
is that they are afraid that they are going
to lose sales.
[150]
Well, if Kroger lost 5% of its total revenue
nationwide, which would be a massive drop,
[157]
that would be about 6.13 billion dollars that
they would actually lose in revenue, but it
[163]
would only be about 95 million in profit.
[165]
Okay, so theyâd lose 95 million in profit
there, but if making that change and saying,
[171]
âWe donât want Visa anymore.â
[173]
If that caused more people to their own MasterCard
that theyâve duel branded, or to go to like
[179]
cash payments or some other option, and letâs
say it saved them 20 basis points across the
[184]
board on all their other remaining revenue,
like 117 billion left over that they would
[189]
do.
[190]
That would actually bring them 245 million
in profit from those 20 basis points.
[194]
So the thing about Kroger is that they are
in a unique position where they can afford
[198]
to lose a lot of revenue and still increase
their profits because their margins are so
[202]
low that if they can cut costs even a little
bit, 20 basis points of cost, then it is a
[207]
huge win for them and they are going to make
a lot more money.
[210]
So that is why Kroger specifically is considering
a nationwide rollout and why they stopped
[214]
accepting cards in their California locations,
but how does this all affect you and why does
[219]
this story matter.
[220]
Iâm sure most of you have seen this story,
but you might be wondering whatâs the big
[223]
picture.
[224]
If we zoom out, why do I care?
[225]
Iâm a sales rep.
[226]
Iâm an ISO.
[227]
Whatâs the big deal?
[228]
Well, there are three primary effects, ripple
effects that I believe this would have on
[234]
the payments industry.
[235]
This is my opinion.
[236]
I could be totally wrong.
[237]
Iâve definitely been wrong before, but these
are what I think.
[240]
This is what I think could happen in the payments
industry.
[242]
#1.
[243]
On my list, Visaâs brand invincibility would
take a major hit in the market place.
[249]
Visaâs brand invincibility would take a
major hit in the market place.
[253]
So Visa has positioned itself as the only
indispensable partner in payments.
[260]
You know youâve got to take Visa.
[261]
I mean the Visa brand is so big and so many
consumers are so loyal to it and all of these
[266]
ideas and things that theyâve put into our
heads and the heads of business owners around
[271]
the country.
[272]
If a major retailor stopped taking Visa, imagine
if Kroger stopped taking Visa and their sales
[278]
only dropped 2% and imagine if in doing that
they increased their profits by 300 million.
[285]
If something like that was to happen in the
next 12 month period in 2019 letâs say,
[291]
that would have enormous ripple effects because
that would be data that Walmart is going to
[296]
look at.
[297]
Imagine if Walmart stopped accepting Visa.
[298]
Do you think that would hurt Visa a little
bit.
[300]
Yea.
[301]
The issuing banks, the kind of pressure that
would put on them and so it would just really
[305]
damage Visaâs brand in the mind of business
owners across the country in terms of this
[310]
fundamental question that is, âDo I need
to accept cards?â
[315]
Thatâs something our entire industry is
really built upon.
[318]
If business owners start to think they donât
need to accept credit cards anymore, we have
[321]
kind of a big problem and so itâs just something
that could be a ripple effect where it is
[325]
going to damage Visaâs brand in a pretty
significant way possibly.
[328]
Weâll see what happens.
[331]
#2.
[332]
Future battles in the legislature and in the
Supreme Court would be affected by this outcome.
[337]
Now this is an area that might actually play
to Visaâs favor a little bit if you think
[341]
about it.
[343]
Most of the court cases now that have to do
with the payments industry revolve around,
[348]
is Visa, MasterCard and the issuing banks
and American Express, are they forming a monopoly
[353]
of sorts?
[354]
Is it becoming to the point where itâs not
practical.
[356]
You canât really compete with Visa anymore.
[359]
They are just too big.
[361]
They need to be regulated.
[362]
All these things, thatâs what Visa is fighting
in the courts and in the legislatures is this
[366]
perception.
[367]
Because again, you need to if you really want
to zoom out, look around the world.
[371]
We are the only developed nation really left
that hasnât regulated interchange fees.
[376]
Visa is very aware of this.
[378]
They are only able to get .3, .4% for their
issuing banks in interchange fees over in
[383]
the UK, Australia.
[385]
They just had to lower, they voluntarily lowered
their interchange rates in Canada just about
[389]
a month ago in order to avoid another big
regulation.
[392]
So Visa understands that the U.S. is their
goose that lays the golden eggs.
[399]
This is where they are making all their profits
because it is not regulated.
[403]
What they are trying to do is they are trying
to avoid this perception that you know they
[407]
are a monopoly.
[408]
Well, now they can go to the courts and say,
âHow can you say we are a monopoly?
[410]
The third largest business in the country
just randomly decided to stop accepting our
[415]
cards and look at them.
[417]
If somebody doesnât want to take our card,
just donât take our card.
[419]
If you donât want to pay our fees, donât
accept our card.
[422]
If you want to accept our card, pay our fees.â
[424]
So it really helps them to position it more
as hey, this is just a good ole free market.
[428]
This is what it is.
[430]
If you donât want to pay our fees, then
donât accept our card.
[434]
#3.
[436]
This battle could keep Visaâs focus off
of cash discounting and make it a little harder
[440]
to fight it.
[441]
So this is a really interesting one because
if you think about it, this whole battle,
[446]
this whole kind of positioning, itâs the
kind of thing that if I was out in the field
[450]
full time selling cash discounting right now,
I would definitely be talking about this Kroger
[453]
situation.
[454]
I really would.
[455]
Iâd say, âLook, this is the third largest
retailer in the country and they are basically
[459]
saying, âHey, these interchange fees have
gotten too high.ââ
[462]
This is the time for you to fight back and
you know the merchants can even tell their
[465]
customers, when their customers come in they
are like, âWhat is this service fee?â
[468]
They are like, âWell, Kroger actually just
decided to stop accepting Visa all together
[472]
because the fees were so high.
[474]
We decided that would be much too inconvenient
on our clients, so instead what we did is
[478]
we have implemented a small price increase,
but we are going to offer a discount whenever
[481]
you pay with cash.
[482]
So that way you have the power of choice to
decide if you want to use your Visa, or if
[485]
you want to use MasterCard, or if you want
to use cash, but we are offering a deal if
[489]
you pay with cash.
[492]
This could have ripple effects though because
you know letâs say 2019 comes along and
[498]
letâs say January 2019, Kroger rolls this
out nationwide.
[500]
Well, they are going to have to justify this
because this is going to inconvenience millions
[505]
and millions of consumers every day that have
a Visa card.
[508]
How are they going to justify it?
[509]
What do you think Kroger is going to do?
[511]
Are they going to sit back?
[512]
Are they just not going to say anything?
[513]
No, they are going to have a huge campaign
that says, âVisaâs fees are too expensive.
[517]
Thatâs why we stopped accepting them.
[519]
We are sorry that we are inconveniencing you,
but we canât afford to pay Visaâs rates
[522]
anymore.
[523]
They are way too high.â
[525]
So all of a sudden, millions and millions
of consumers are going to become more aware
[529]
of interchange costs and how high they are.
[531]
So is that really the best time for Visa to
go on the attack against businesses and say,
[536]
âYou donât have the right to pass our
costs onto consumers.â
[539]
I donât know.
[540]
They could, but that would be pretty challenging
for them to go after that.
[543]
So it really could kind of keep their focus
off of it and make it a little harder to fight
[547]
the cash discounting and again it also should
help you to kind of frame the cash discounting.
[551]
In closing, honestly I was a little surprised
just to find out how big Kroger was, how big
[555]
of a deal this was, when I really was able
to dig into it.
[559]
But I think whatâs going to happen here
is itâs very possible that the large retailors
[563]
could finally get together and have the leverage
that they need, the one thing that could really
[568]
bring Visa to its knees and bring them to
the negotiating table on interchange rates
[571]
and that would be not accepting Visa.
[573]
So this is just an interesting thing, something
Iâm really excited to kind of see how it
[577]
plays out.
[578]
I think it could be good for us.
[579]
It could be bad for us, but it is always exciting
to watch these big players duke it out.
[582]
My name is James Shepherd.
[583]
Have an awesome day!
Most Recent Videos:
You can go back to the homepage right here: Homepage