Dive Brief:

• Kroger has announced that its Smith's Food and Drug Stores division will stop accepting Visa credit cards as a form of payment starting April 3, the company noted in a release. This will be Kroger's second banner store that has stopped accepting Visa cards, following Food Co. Supermarkets in California in August.
• The decision is intended to keep costs low for customers at 142 supermarket and 108 fuel center locations across seven states where Smith's operates.
• The grocery retailer cites Visa's excessive interchange and network fees, which are the highest of any credit card company accepted at Smith's. Customers can still use Visa debit cards and credit cards from other companies like Discover, Mastercard and American Express.

Dive Insight:

Kroger's Visa ban at Smith's comes not long after the same one at its West Coast Foods Co. subsidiary, and the grocery industry's razor-thin margins may be the driving force. With heavy investments in in-store technology and e-commerce rollouts, the retailer is likely looking to cut costs elsewhere.

Kroger is one of the only retailers in the U.S. to enact this policy against Visa credit cards. With its latest announcement, it doesn't appear that the grocer is going to step down from its stance — barring a deal between the two companies. Visa did reach an agreement with Walmart in Canada a few years ago, but so far Kroger's ban hasn't made Visa budge.

Retailers have been lobbying for years to get credit card companies to lower rates, but despite the fact that Visa has the highest fees among card issuers, it's still the most widely accepted card in the world. According to the most recent Facts and Figures report in September 2016, more than 44 million merchants took the card. 

Many retailers, especially smaller merchants, don't accept American Express because they typically charge a merchant fee of 2.5% to 3.5% — higher than other card issuers. These fees are higher because Amex relies on these fees instead of interest fees. But just last week, Visa and Mastercard announced they will both increase fees on merchant banks in April, according to Bloomberg. Often times these banks will pass on the hike to merchants and merchants will then pass on the costs to customers.

But Kroger's subsidiaries like Foods Co and Smith's aren’t premium grocers and an increase in prices could drive customers to competitors. On the other hand, with about 312 million Visa credit cards in circulation in the U.S., the ban could be inconvenient enough for customers to switch grocery stores. However, Kroger's ban for Visa cards has been in full effect at Foods Co. since August, and it's unlikely the retailer would choose to expand it if the benefits didn't outweigh the risks.