While generally aiming to be friction-free, a bit of striking out, a touch of competition and, perhaps, a slightly looming threat of disruption can have a stimulating impact. Only a diamond can cut a diamond, as the adage goes, and a bit of friction can help brands sharpen up.
So, who got sharpened this week?
Visa Vs. Kroger — The Swipe-Fee War
It started with an announcement that a California Kroger subsidiary — Foods Co — would stop accepting Visa credit cards (but not debit cards) at 21 of its grocery stores and five of its gas stations, effective Aug. 14 of this year. According to a release by Foods Co, Visa is officially off the payments acceptance menu in-store so the chain can stave off what it says are the high costs associated with the card when it comes to interchange rates and network fees.
“Visa’s rates and fees are among the highest of any credit card brand,” Foods Co noted in its release, saying that the savings netted by pulling the plug on Visa will be passed along to consumers in the form of everyday low prices on high-priority goods for grocery shoppers.
The story got bigger from there: Kroger announced it was thinking bigger, and might consider a total ban on accepting Visa credit cards throughout all of its grocery chains. Reports in the Chicago Tribune indicated that Kroger CIO Chris Hjelm was thinking that perhaps it was time to really re-evaluate Kroger’s total relationship with Visa.
“It’s pretty clear we need to move down this path, and if we have to expand that beyond Foods Co, we’re prepared to take that step,” Hjelm said. When the amount retailers pay in card fees “gets out of alignment, as we believe it is now, we don’t believe we have a choice but to use whatever mechanism possible to get it back in alignment.”
Kroger is the largest grocery conglomerate in the U.S., and news that it is hitting back hard against the $90-billion-a-year swipe fee industry was big news — shares in Visa, American Express and Mastercard all dropped on the news. For its own part, Visa remains committed to finding a solution to bridge the gap.
“Visa is disappointed at Kroger’s decision to stop accepting Visa credit cards at its Foods Co stores. When consumer choice is limited, nobody wins. Our goal is to protect the interests of our cardholders to ensure they can use their Visa credit cards wherever they shop. Visa remains committed to working with Kroger to reach a reasonable solution,” a Visa spokesperson told PYMNTS via email.
Apple Vs. Huawei
Apple, by all accounts, had a very good week last week. Earnings were strong — particularly in the services department — and the company managed to make it over the finish line and become America’s first trillion-dollar publicly listed firm.
Party hats all around.
This might have made it pretty easy to overlook the tiny grey rain cloud the floated by: The Chinese phone manufacturer Huawei sold more phones than Apple did in the last quarter. Apple got pushed out of the number-two spot in terms of smartphone shipments for the Q2 of 2018, according to market research firm International Data Corporation (IDC).
In a press release highlighting the results for the June-ending quarter, IDC said smartphone vendors shipped 342 million units in the second quarter, marking a 1.8 percent decline year over year. In the second quarter of last year, that number was 349.2 million. It marks the third quarter in a row of year-over-year declines.
The report also found that Huawei landed in second place, having knocked Apple down to third. This is the first quarter since the Q2 of 2010 where Apple wasn’t in first or second place. Huawei had shipments of 54.2 million units, and record-high market shares of 15.8 percent. Samsung, meanwhile, was in first place with a comfortable lead over the second and third place players.
“The continued growth of Huawei is impressive, to say the least, as is its ability to move into markets where, until recently, the brand was largely unknown,” said Ryan Reith, program vice president with IDC’s Worldwide Mobile Device Trackers. “It is worth noting that Apple moved into the top position each of the last two holiday quarters following its product refresh, so it’s likely we’ll see continued movement among the top-ranked companies in 2018 and beyond.”
IDC noted that in the high-price, high-end market, the competition is largely between Apple, Samsung and Huawei (depending on the geography) — and it doesn’t see that changing much anytime soon.
Samsung held first place, despite the fact that shipments declined 10.4 percent compared to last year’s second quarter. IDC said its flagship S9 and S9 Plus saw weaker-than-normal sales, brought on by heightened competition and an overall sluggish smartphone market. Meanwhile, Apple shipped 41.3 million iPhones, marking growth of just 0.7 percent compared to a year ago. That said, the iPhone X remains a top seller in many markets, particularly developed markets.
The Ant That Moved More Than The Rubber Tree Plant
According to The Wall Street Journal (WSJ) reports this week, Ant Financial, the Chinese payment affiliate of Alibaba, has created such a massive FinTech company that it is turning Chinese banking on its head.
Much of that, according to the reports, comes as a result of Ant’s massive size. The company handled more payments than Mastercard in 2017, operated the biggest money market fund in the world and served tens of millions of customers. Alipay, its digital payments platform, completed more than $8 trillion in transactions, roughly twice the GDP of Germany.
Growing as large as it has, the firm has also drawn loud complaints, particularly from traditional banks that claim Ant steals away depositors — which in turn forces them to charge higher interest rates, close branches and shutter ATMs.
Authorities have reportedly taken notice — regulators in-nation have been moving to limit the markets Ant can pursue. For example, earlier in 2018, the Central Bank in China hurt an effort by Ant to create a national credit scoring system by preventing financial firms from using its score to underwrite loans. Regulators have instated rules that require big-money market funds to reduce holdings of assets that enable them to pay high-interest rates, and pressured Ant to slow down inflows into its money fund. There has also been some talk that Ant should be designated as a financial holding company, which would require it to meet the same capital requirements traditional banks must — and would likely impact profits.
Last year, Ant reported pretax profits were roughly $2 billion on revenue of about $10 billion.
Leiming Chen, Ant’s general counsel and SVP, told the WSJ that criticism over Ant acting like a bank without oversight isn’t true. Ant, he said, is bringing financial services to the unbanked, and the company doesn’t fund most of its loans from its own balance sheet, but rather acts as a platform for banks and others to extend loans to borrowers.
“I don’t think banks see us as a disrupter,” he said. “We complement them and are helping them reach more customers.”
So, what have we learned this week? Peace is nice, but a bit of strife keeps the juices flowing.