Walmart Pay, Thunder Bay and the Future of Payment Processing
Walmart made a pair of payment-processing moves in recent weeks that are a part of a larger long-term effort to exert greater control and realize significant savings in this part of its operations.
Having reached an impasse in negotiations over the credit-card transactions fees Walmart is required to pay to Visa, Walmart Canada took a slightly dramatic step in an increasingly public disagreement by announcing that three Thunder Bay, Ontario Walmart stores will no longer accept Visa-based payments. The company claims that this severing of ties with Visa will be replicated across Canada in phases, although additional details were nonexistent. (Thunder Bay was first up because the stores’ infrastructure supported a quick and easy implementation, according to Walmart representatives and the Canadian Broadcasting Corporation.) Although, one can assume that the silence on the part of both parties in the last week precedes an announcement that the falling out was, in fact, reparable.
This particular Visa dust up is strictly a Canadian affair affecting those 390+ Walmart stores, but Walmart Stores Inc. has two of US lawsuits pending against Visa, both centering on fees that Visa charges for its services.
Credit-card transaction fees for retailers are roughly 1 percent to 2 percent of each transaction. And the fractions of a percent that make up the gap between 1 and 2 translate into significant added costs to the world’s largest retailer. Chain Store Guide estimates that in the United States alone in 2015, Walmart’s card-based sales subject to fees were well over the $100 million mark.
It’s against this backdrop that the July US-wide rollout of Walmart Pay is most interesting. Walmart began testing its mobile payment platform last year in Arkansas, Kansas and Missouri, and it’s now the mode of mobile payment in all 4,500+ Walmart stores. Walmart Pay is a part of the larger Walmart app, and app available on Android and iOS and used by a reported 20 million customers. To use Walmart Pay, consumers make in-store payments by scanning a QR code with their phone at check out. They can use the platform in conjunction with debit and credit cards, prepaid cards and Walmart gift cards, all managed through a Walmart.com account.
Walmart Pay is by far the most significant retailer-created and branded mobile payment app to date. Walmart is betting that its scale and ubiquity combined with an improved check-out experience are enough to entice customers to adopt a single-retailer payment app without fussing about not having an option to use Apple Pay, Andriod Pay, forthcoming bank-based platforms (such as Chase Pay) or the oft-discussed but still-not-launched Merchant Customer Exchange platform (a multi-retailer development project to create standard mobile-payment solutions).
Should Walmart succeed, it will be able to integrate payment processing into its consumer-loyalty ecosystem, gaining additional data-driven marketing and sales opportunities. As importantly, if Walmart can gain in-house control of a substantial portion of its electronic payments, it then has a much greater hand when deciding which credit-card issuers, banks and other mobile wallets it is willing to partner with and under what terms – a state of affairs that offers more leverage than today’s Thunder Bay stores.