What One Grocery Chain’s Visa Ban Might Mean for You

If the dispute over 'swipe fees' were to spread, it would have consequences for a lot more wallets.
Robin Saks Frankel
By Robin Saks Frankel 
Edited by Kenley Young

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In October 2019, Kroger lifted the ban on Visa credit cards that had affected a handful of stores in California. For more information on this topic, see our story about interchange (or "swipe") fees and our story about where the money for credit card rewards comes from.

As any points- and miles-obsessed shopper will tell you, paying with plastic is second nature. For many of these rewards-earning enthusiasts, hearing a cashier tell them that the store no longer accepts Visa credit cards may be tantamount to tragedy.

At nearly two dozen supermarkets in California, that's a reality for now.

On Aug. 14, 2018, L.A.-based Foods Co., a division of The Kroger Co., stopped accepting Visa credit cards in all 21 of its grocery stores and five gas stations, in a dispute over Visa's interchange rates and network fees.

Of course, if you don't live in the central and Northern California regions where that chain has its footprint, you're not affected. But Kroger is one of the largest supermarket chains in the country. If other stores under its vast umbrella also were to implement such a ban — or if a similar dispute were to spread to other companies — the overall effect could do more than simply derail your rewards-earning potential.

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Why the ban?

Foods Co. took the action in protest of Visa's interchange pricing — aka "swipe fees." Every time you swipe a credit card at a store, that merchant has to pay a fee for the card to be processed so that you get charged and they get paid. Foods Co. argues that Visa's fees are too high.

Retailers don't have a whole lot of [negotiating] power, and there is sort of oligopoly pricing, especially with smaller businesses.
Lauren Saunders, associate director, National Consumer Law Center

There's no set standard for such fees, which means that a Visa card may cost a large supermarket chain a few tenths of a cent more than an American Express rewards card, but the reverse could be true for a mom and pop grocery.

"Retailers don’t have a whole lot of [negotiating] power, and there is sort of oligopoly pricing, especially with smaller businesses," says Lauren Saunders, associate director for the National Consumer Law Center, a nonprofit specializing in consumer issues.

You can still pay with a Visa debit card or a Mastercard, American Express or Discover credit card at Kroger stores.

What this could mean for you

Imagine that Kroger were to extend a Visa ban — or a ban on any other kind of card — to its roughly 2,800 grocery stores across dozens of states. If you're a brand loyalist, that could hurt you in a few ways.

First, there would be the lost rewards opportunity. According to the U.S. Department of Agriculture, a family of four (including two young children) with a "moderate" grocery budget, spends around $200 a week at the supermarket. If that household charged that shopping over a year on a credit card that earns, conservatively, 2% back at supermarkets, the rewards could potentially be around $208 in cash back.

Swipe fees definitely drive up the price of merchandise.
Craig Shearman, National Retail Federation spokesperson

But more than the potential of lost rewards, your grocery bill itself might feel some effects, experts say.

"Swipe fees definitely drive up the price of merchandise," says J. Craig Shearman, spokesperson for the National Retail Federation.

According to Shearman, the average consumer pays over $400 annually in higher prices as a result of swipe fees that are baked into the price of just about everything you buy.

The difference between credit card swipe fees and other charges, like sales tax, is that sales tax is listed separately from the initial price on your receipt. But swipe fees can be folded into the price of what you're buying, so you likely aren't aware of how much they might increase the overall cost to you.

It's worth noting that some retailers deny that they pass along the cost of swipe fees to their customers. Some merchants say that their ability to accept credit card payments means convenience and efficiencies in workflow that can cancel out the swipe fee expense.

Will history repeat itself?

It might seem like a simple solution to just regulate and standardize interchange fees the way that the Durbin Amendment did for debit card swipe fees. As part of the 2010 Dodd-Frank law, the Durbin Amendment put a cap on the amount banks could charge retailers for debit card swipe fees.

Proponents of the rule argued that the overall savings by retailers on those fees would be passed down to consumers in the form of lower prices.

The same banks that pay out lucrative credit card sign-up bonuses and rewards may not be so generous if they start losing money on credit card swipe fees.

But banks like making money.

Knocking down fees on debit card swipes ultimately had a whack-a-mole effect; higher fees began popping up elsewhere. To make up for the reduced revenue from debit card swipe fees, banks began charging higher fees in other areas like account maintenance and overdrafts. Moreover, banks cut back on perks like debit card rewards programs.

Those same banks that pay out lucrative credit card sign-up bonuses and rewards may not be so generous if they start losing money on credit card swipe fees.

The big picture

Although in theory the Visa ban could save Foods Co. consumers money if swipe-fee savings were passed down to them, experts suggest it might really be more of a power play by the retailer.

"It's really negotiation with Visa for something bigger and better," says Phil Lempert, a supermarket analyst and founder of the SupermarketGuru.com. Lempert says he suspects Kroger wants a better deal with Visa in order to launch a premium credit card that rewards loyalty, similar to the highly successful Amazon Prime Rewards Visa Signature Card.

Pay attention to the plastic you're using at the grocery store, especially if you're worried about the prospect of swipe fees driving up your food costs.

Even if Foods Co.'s ban is unsuccessful in pressuring Visa, as a consumer it may benefit you to pay more attention to the plastic you're using at the grocery store, especially if you're truly concerned about the prospect of swipe fees driving up the cost of your food.

"A super-premium card that pays rewards adds as much as 4% to the price of what you're buying," Shearman claims.

You can always pull out a debit card when you hit the checkout line (or even a personal check or plain old cash, if those are accepted). Those payment methods may not earn you rewards, but they could earn you peace of mind.

Information related to the Amazon Prime Rewards Visa Signature Card has been collected by NerdWallet and has not been reviewed or provided by the issuer of this card.

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