A simple announcement that speaks volumes to the path one has to take to play big boy with the networks, WalMart is shifting it’s processing business to ChaseNet. On the face of it, not a huge surprise as ChaseNet already processes their e-commerce business, but what a pay out for these two giants.
Walmart has been on the forefront of the payments industry version of Game of Thrones for decades, initiating one lawsuit after another trying to wrestle control over their acceptance practices from the card networks. Starting with the Honor all Cards lawsuit of the mid-1990’s (which they won) to their most recent suit claiming Visa is preventing them from asking for PIN-only verification for EMV debit transactions (in process), the retailer has not shied away from starting a fight and standing up for what it believes are best practices.
Yet, perhaps it’s recent experience of having to sunset MCX in the face of the insurmountable challenge of creating a new payments network from the inside out (and turning it over to Chase Pay), signaled the wall even a company as large as WalMart was bound to hit and perhaps as a result, making them realize they needed an ally that was up to the task of going toe-to-toe with the card networks.
Chase has a storied history of controlling its destiny, including obtaining a perpetual license to the TS2 platform, developed by TSYS. On the merchant side, they built one of the largest merchant processing portfolios in the world, Chase Paymentech and then leveraged that scale to create ChaseNet which is essentially a hybrid network consisting of the VisaNet system and ChasePaymentech. According to their 2015 Annual Report, they estimated 2016 merchant volume through ChaseNet would be $50 billion. Comparing this estimate to their reported 2015 merchant volume (which includes all volume) of $959.3 billion, one can see ChaseNet has plenty of room to grow. Once fully boarded, the WalMart deal will boost that ChaseNet number significantly.
The stated value of ChaseNet is to bring together both ends of the transaction to the benefit of cardholders and merchants enabling not just cost-effective transaction processing, but enhanced insights into buying behavior, improved rewards and better yet, more profitable accounts. However, ChaseNet also holds the promise and opportunity of operating as a closed loop network similar to American Express and Discover. In this model, interchange is irrelevant since the acquirer (the network) determines its own discount fee, which is exactly what Chase is doing (within the boundaries of its most current Visa agreement) and Walmart is loving.
The other advantage of a closed loop network is that it can define its own operating rules and regulations. This aspect of the Chase-Visa relationship is unclear, since Chase remains a member of the Visa network (therefore, beholden to its rules) and it’s unknown which of these regulations, if any, they were able to bend in the early stages of their new agreement. It’s certainly possible that over time, as ChaseNet becomes a more powerful network, they can begin to gain control over more than just costs.
And wouldn’t Walmart love that.