Kroger, the largest supermarket chain in the US, introduced Kroger Pay, a QR-code-based mobile wallet that allows customers to load both their payment and loyalty cards to pay for groceries and earn rewards points.
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Kroger also announced its upcoming launch of the Kroger Rewards debit card this spring, which will offer bonus points and discounts.
- Kroger Pay could streamline transactions, which could promote habit formation.Kroger Pay is intended to cut down checkout times and can successfully showcase the convenience of mobile payments: Credit card transactions can take as long as 12 seconds, while a mobile wallet transaction can take just 1 second, for example. Further, implementing this system at a popular supermarket chain can promote habit formation. And while Kroger Pay is store-specific, it could peak consumer interest in using phone-based mobile wallets for purchases beyond Kroger. Kroger could potentially replicate the success that Walmart’s seen with its digital payment method, Walmart Pay, which enrolled tens of thousands of new users a day just five months after launching.
- But customers might need an incentive to try the new payment method. Although Kroger Pay could streamline checkout, mobile wallets aren’t popular in the US: Only 14% of US consumers use mobile wallets, according to a Juniper study, which might make it necessary for Kroger to incentivize adoption. Kroger can offer a limited time promotion during the initial rollout, which has proven effective in getting people to try unfamiliar payment methods: 44% of respondents to a Mintel study said discounts would get them to switch payment methods.
Given Kroger’s past disputes with card networks, it’s possible that Kroger Pay could eventually operate on direct debit. Kroger has long been battling Visa over interchange fees, which are charged to merchants each time a customer makes a transaction using a credit card: In 2016, Kroger sued Visa over debit card transactions, after Visa said that the retailer’s EMV-enabled terminals didn’t comply with Visa regulations; Kroger stated that Visa threatened to fine it $7 million if it didn’t require debit transaction verification with a signature instead of a PIN.
And in August 2018, the dispute escalated when Kroger ended Visa credit card acceptance at 21 of its Foods Co supermarket subsidiaries and five gas stations in California.
Meanwhile, interchange fees have led other major retailers including Target and Walmart to pressure the Federal Reserve to develop a centralized real-time settlement service, which could facilitate the launch of a direct debit platform that would allow customers to pay directly from their checking accounts at the point-of-sale (POS), bypassing card rails. Such a service could allow Kroger to eventually avoid some interchange fees by enabling Kroger Pay to run on direct debit.
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