WinCo Foods Demonstrates the Power of, and Obsession Over, Managing Payments Costs

by Ben Jackson 0

WinCo Foods is a privately held grocery chainin the western United States that has garnered attention bycompeting with Wal-Mart stores on price alone. An article in Time magazine discusses the ways inwhich the company keeps prices low, including direct purchasingfrom farms and factories, limiting its catalog of items, and havingcustomers bag their own groceries. Included in that list is itspolicy of not accepting credit cards.

On its own FAQ page, WinCo explains why:

Q: Does WinCo Foods accept credit cards?
A: No, due to the high merchant rates associated with them and toprotect our prices, WinCo Foods does not accept credit cards. Wegladly accept cash, checks (that meet our requirements), debit, WICand EBT transactions as forms of payment.

The company also offers its own gift cards, which is notsurprising given that the cost of accepting a closed-loop paymentis lower than accepting open-loop cards.

While merchants have protested the costs of electronic paymentsfor years, it appears that they are rethinking their strategies.Advances in technology have given them the ability to make use ofclosed-loop payment forms and to steer payments towards forms thatare more cost effective for them. Changes in the law and recentlegal decisions have allowed them to promote different paymentforms without fear of retribution from the payments networks, andthe ability for increased customer communication has allowed themto, as in the case of WinCo, make a case for refusing certain typesof payments and explain that decision to their customers.

While payments steering was once mostly the province ofindependent gas stations that offered discounts for paying cash,merchants of all types are looking for ways to manage paymentscosts. More are offering cash discounts, and companies such asStarbucks and Cumberland Farms, a gas station and convenience chainin the Northeast, have found ways to build their own paymentssystems. Mercator looked at this trend in more depth in Field Notes on Merchant Payments Steering. Whatwe found is that this steering is more prevalent among smallermerchants, but that it is increasingly common. The MCX mobilewallet is an outgrowth of this and will likely include some methodof payments steering.