WMT Walmart Inc

By Sarah Nassauer and Robin Sidel 

Wal-Mart Stores Inc. has taken the unusual step of making its shoppers feel the pain of a dispute with Visa Inc.

The retail behemoth Monday stopped accepting Visa credit cards at three of its Canadian stores, marking a rare consumer-facing battle in an escalating war between the biggest global retailer and credit-card companies, largely over the fees Wal-Mart pays them.

Despite months of talks, Wal-Mart said it was unable to agree on terms with Visa. The retail chain argues that the fees it pays when shoppers use the cards are too high. U.S. stores, which account for 62% of Wal-Mart's global sales, are unaffected by the Canada dispute and work under a different agreement.

For the showdown, Wal-Mart picked Thunder Bay, Ontario, a town of 120,000 at the northwest corner of Lake Superior relatively isolated from other major Canadian and northern U.S. cities.

"It's an escalation. They want to see what the consumer does and they want to see what Visa does," said Dave Marcotte, a senior vice president at Kantar Retail, a research and consulting firm.

Because of Thunder Bay's size and location, it's a relatively low-risk gambit. "The location kind of keeps things contained," said Mr. Marcotte.

Wal-Mart plans to roll out the change in phases across Canada, where it has 405 stores, said a company spokesman. The company hasn't set a timeline.

Visa says it is working to ensure Canadians can use their cards everywhere they wish to shop -- including at Wal-Mart stores.

Visa also says there's no evidence that reductions in credit-card-related fees in other countries have resulted in savings for consumers.

Some customers caught in the middle voiced their displeasure Monday. "I think Wal-Mart just lost a couple of thousands of dollars a month from one family," said Rebecca Zajac, who uses her Visa card from Royal Bank of Canada each week when she shops at one of the Thunder Bay stores.

Ms. Zajac, who previously saw the signs at Wal-Mart warning that they would stop accepting Visa on Monday, says she stocked up on things she likes buying at Wal-Mart in advance and will go to a different grocery store that accepts Visa this week. Wal-Mart had posted signs at the front of its Thunder Bay stores in June saying it planned to shut off Visa.

Ms. Zajac, a chef who briefly worked as a Wal-Mart greeter about 15 years ago, says she and her husband are debating whether to go back if Wal-Mart starts accepting Visa again.

Wal-Mart spokesman Alex Roberton said: "We regret any customer dissatisfaction" and that the store is "taking a stand for our customers because Visa's high fees can result in increased prices." Mr. Roberton said fewer than 10 customers out of thousands in affected stores Monday didn't have the right form of payment.

Visa and MasterCard Inc. agreed in late 2014 to cap Canadian fees at roughly 1.5%, but Wal-Mart and other large merchants typically are able to negotiate their own deals.

A retailer blocking a credit card "is extremely rare," said Joel Bines, managing director at AlixPartners, a consultancy. Retailers are offering shoppers more ways to pay, from card types to mobile payment, said Mr. Bines. "Probably the last thing a retailer should be doing in today's fight for consumer share is making it harder for customers to shop."

Earlier this year, Wal-Mart and Kroger Co. filed separate lawsuits against Visa related to new chip-enabled debit cards meant to enhance the cards' cybersecurity features. The retailers say that when shoppers use the new chip cards, they should be able to only type in a personal identification number, or PIN.

Visa's rules require that customers also have the choice of signing. Retailers say signing is more expensive and less secure than a PIN. U.S. merchants paid roughly $40 billion in interchange fees last year -- roughly 2% of every transaction, according to payments consulting firm R.K. Hammer Inc.

Meanwhile, a federal appeals court in June threw out a $7.25 billion antitrust settlement between Visa and MasterCard and millions of retailers after determining that some of the merchants covered by the pact weren't adequately represented, ending a class-action lawsuit that had stretched over a decade.

In Canada, around 59% of people say Wal-Mart is right to cut off Visa from stores, according to a recent poll from the Angus Reid Institute, a Canadian polling agency. However, almost half of Wal-Mart shoppers surveyed who use Visa said they are less likely to shop there if the card is banned.

The companies worked to win over public opinion Monday. On Twitter, Visa's Canadian account took a jab at Wal-Mart, noting that Visa is still accepted at many stores in Thunder Bay "most of them local small businesses."

Visa also started offering a $25 gift card to cardholders who spend at least $75 at grocery stores. On social media, Wal-Mart repeated its mantra that Visa's fees indirectly raise prices in stores.

It's more common for a merchant to cut off acceptance of a single card brand in the case of a contract's expiration, such as when Costco Wholesale Corp. recently stopped accepting American Express cards because it struck a new deal with Citigroup Inc. and Visa.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Robin Sidel at robin.sidel@wsj.com

(END) Dow Jones Newswires

July 18, 2016 18:41 ET (22:41 GMT)

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