Walmart: Don't Stop Me Before I Sue (Visa) Again

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Walmart really wants out of the $6 billion interchange settlement, and for a very specific reason: The world's biggest retailer doesn't want to be barred from suing Visa and MasterCard again. And the only way to preserve that right is to get enough big chains to bail out of the settlement.

But the real problem—Visa's death-grip on payments—isn't one any lawsuit will solve. Big retailers abandoned their store cards because taking Visa was cheaper than maintaining their own credit infrastructure. Now Visa is holding all the cards, and chains are unenthusiastic about any of the alternatives.

The settlement, which would also enable retailers to add a surcharge for payment-card transactions or to discount debit-card sales compared with credit-card sales, was designed to avoid an antitrust trial against Visa, MasterCard and card-issuing banks that was slated to start in September. Kroger, Walgreens, Publix and 15 other named plaintiffs initially agreed to the deal.

Walmart isn't a named plaintiff in the proposed class-action settlement, just a retailer that falls into the settlement class. Ordinarily, that would mean the chain could simply opt out of the settlement, collect no money and preserve all its rights.

But according to Thompson Reuters legal reporter Alison Frankel, this settlement is as convoluted as you would expect from the people who gave us PCI. Under the rules for this particular class action, retailers can only opt out of their share of the $6 billion plus the eight-month reduced-interchange period—but not the limit on future lawsuits. "It's the opposite of take the money and run: Give up the money and stay tied to the other terms of the settlement," Frankel wrote.

That explains Walmart's sudden full-court press to scuttle the whole deal. If it can get retailers who represent 25 percent of Visa and MasterCard's dollar volume to reject the deal, the card brands can unilaterally declare the deal dead. Alternatively, if enough chains bail on the deal, the judge can reject the settlement and the massive case can continue to lurch toward a trial. But just the settlement approval or rejection will tie things up until at least early summer of 2013.

(For anyone who really wants to keep score, before any of that happens the court has to sort out the situation with the National Association of Convenience Stores. The Association is the only named plaintiff that objects to the settlement terms and has now changed lawyers to Constantine Cannon, the law firm that represented Walmart when it led the last big retailer interchange revolt, which resulted in a $3 billion settlement in 2004. Small world, huh?)

All these complications—and especially Walmart's vehement opposition—make it increasingly unlikely that the settlement will survive as it currently stands. That means eventually the lawsuit will go to trial.

Trouble is, that's almost certainly pointless for chains looking for interchange relief. They don't need a verdict. They need competition in payments.

And that's where the real conflict lies on the retailers' side: U.S. retailers don't much like any of the alternatives to Visa and the banks—or even alternatives to magstripe cards.Sure, big chains very publicly jumped on the Google Wallet bandwagon last summer, and more recently over a dozen have signed on for PayPal's in-store payment system. But none of the chains has retrained associates to encourage customers to use the alternative payment systems—and almost no customers use the new systems.

It's the same eerie silence at the POS that followed the introduction of contactless cards: Retailers installed the necessary PIN pads. Banks issued contactless cards. No one encouraged customers or cashiers, who in many cases didn't even know contactless was a possibility. Result: Contactless was dead in the water.

Compare that to the one retailer that has actually pushed a sort of alternative payment system: Starbucks. Every barista in the chain knows exactly what to do when customers hold up their phones that way. And customers who use the Starbucks app like it. They really like it. They volunteer how much they like it every time they're asked about Google Wallet or ISIS or PayPal or anything Apple might be thinking about for mobile payments.

None of those options is real to these customers. But the pay-by-mobile with Starbucks? It's not only real, it's something they do everyday.

So why hasn't anyone but Starbucks (and a toe-dipping Burger King) made that effort? Is it because retraining associates, and especially customers, is too difficult and expensive? Yes, because that requires investing real training and marketing dollars. But anyone who wants confirmation of ROI can walk the roughly 150 yards (OK, 175 yards, tops) to the nearest Starbucks.

Is the problem that Google, ISIS and PayPal are really just front-ends for the same old Visa and MasterCard (and the same old interchange)? Then chains will have to reinvent payment themselves—and the people working on the problem probably shouldn't be treasury types who are only concerned about somehow getting out from under interchange. Remember, every big chain that's old enough once had its own payment-card operation. Running them wasn't cheap. Interchange used to be a way for retailers to cut costs.

Is it because developing a new system in-house is too tough a technical problem? That's hard to believe, in a business where Walmart buys up startups in a steady stream, Kroger has built its own checkout scanning tunnels from scratch and Sears has spun off its own "Big Data" service provider.

Besides, the landscape is littered with the corpses of alternative payment startups that had good ideas but never got traction over the past decade. Buying the remnants of one of those dead startups and repurposing its technology is easily in the range of larger chains.

Any retailer that can train customers to pay with something—anything—that doesn't bear a Visa or MasterCard logo has taken a real step toward getting out from under interchange. Now that chains have figured out the best they can get from the card brands is pocket change and an eight-month discount (with a side order of pushback from Walmart), maybe they're ready to take that next step.

But don't count on it. Lawsuits are really seductive, they take years to resolve and the results tend to favor the biggest players. And while that $6 billion settlement might not really be good for any retailer, keeping the lawsuit going is definitely good for Walmart.