Walmart's new pact with JPMorgan Chase is anything but routine.

The processing deal, which expands on the companies' earlier relationship for handling Walmart’s e-commerce transactions, diverts Chase card payments at more than 5,000 Walmart and Sam’s Club stores through ChaseNet, a closed-loop system designed to slash costs for merchants.

Chase accomplishes this by acting as the acquirer, network and issuer for transactions where both the cardholder and the merchant are Chase clients. And from the perspective of Walmart, this deal hands it a long-desired holy grail: less expensive Visa transactions.

“We will still have a relationship with Visa for non-Chase transactions,” but the deal with Chase "will bring much-needed competition to the payments markets," said Randy Hargrove, a Walmart spokesman.

Walmart has been a scathing critic of Visa's fees and routing structure, repeatedly confronting the card network in court and, more recently, going so far as to ban Visa cards at certain locations in Canada.

The deal with Chase, announced today, gives Walmart significant new leverage in how it handles Visa transactions. “Walmart will have the ability to selectively route transactions based on the performance of the payment providers,” Hargrove said.

Visa did not provide comment on the Walmart-Chase deal by deadline. ChaseNet has its roots in a 10-year contract that Visa entered with Chase in 2013 to create a customized processing and end-to-end payments platform. ChaseNet has since become the foundation of Chase Pay, the bank's mobile wallet.

Walmart is inviting other issuers to consider similar arrangements, Hargrove hinted. “We believe other issuers would benefit from the efficiencies created by connecting directly with Walmart," he said.

Kimberly Fitzsimmons, U.S. market president for Chase Merchant Services, explained ChaseNet's structure this year at SourceMedia's annual Card Forum and Expo.
"What is ChaseNet? It is a simplification of an ecosystem. It takes a traditional five-party acquiring system and takes it down to three," she said.  "When you take two extra parties out of touching that system, nothing is more secure."

Because ChaseNet is a closed-loop system, it enables the issuer to provide fixed-rate pricing for Chase Visa credit and debit payments for the term of the contract.

With its giant volume as the nation’s largest retailer, Walmart already likely has favorable pricing arrangements with the payment networks, said Patricia Hewitt, CEO of PG Research & Advisory Services in Savannah, Ga.

But it’s the strategy behind Walmart’s deal with Chase that’s especially interesting, according to Hewitt. “Walmart has made no bones about its interest in breaking up the card networks,” she said.

“They’ve been at the forefront of that fight since the 1990s and went so far as to try to develop their own network,” she said, pointing to Walmart’s key role in establishing the Merchant Customer Exchange mobile wallet initiative,

MCX abandoned its efforts to develop a merchant-branded mobile wallet. Instead, MCX is now working with Chase to enroll merchants with Chase Pay.

With the growing momentum around Chase Pay—now supported by Best Buy, Shell Oil and Phillips 66—Chase also is advancing its agenda to wrest control over payment networks.

“With the assets Chase now controls, it can offer Walmart something very close to autonomy over Visa and this deal also creates an even more muscular entity to deal with when it comes time to renegotiate contracts,” Hewitt said.

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