The battle between Visa and Walmart heats up (V, WMT, HD, KR, MA)

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Walmart is one of three companies currently suing Visa, and now the financial services company is fighting back.

Visa has filed a counterclaim against Walmart after the retail giant sued Visa over the card network's policy about how consumers verify debit card transactions, reports Fortune. The two companies have had several legal battles in the past, and Walmart even stopped accepting Visa credit card purchases in Canada because of high fees.

Consumers can use either a PIN or a signature to verify these transactions. Walmart wanted mandatory PIN and reportedly set up its terminals in that way back in February. But Visa then forced Walmart to allow signature support because of its policy that requires consumers have a choice in verification method. This led Walmart to sue Visa.

Visa is countersuing because it says Walmart's PIN-only plan is in "bad faith" and reportedly breached contract, especially because Visa only learned about it through customer complaints and a "significant drop" in debit volume.

Merchants such as Walmart want chip cards to use PIN-based verification for two main reasons. First, it is far more secure than a signature, which customers can forge under the right circumstances. However, U.S. customers typically prefer signatures because they do not require memorizing a four-digit number.

Retailers also prefer PIN because it reduces cost. Card networks such as Visa earn revenue by charging a fee on each transaction. PIN-based verification provides more options for merchants, which means potentially cheaper transaction fees that could save money in the long term. For context, Visa reportedly charges Walmart approximately five cents more for a signature-based transaction than a PIN-based one.

Walmart relies enough on Visa that the lawsuit would likely end in settlement, but this could have tremendous implications on the industry's future. Visa is the most prominent debit card brand in the U.S. with 484 million debit cards in the nation at the end of 2015. For comparison, MasterCard had 183 million.

Reportedly, 70% of Walmart's card payments come from debit cards, and many of those are likely Visa branded. This would make Walmart quite reliant on Visa as a source of sales, which hinders the retailer's bargaining power in this situation. But other retailers, such as Home Depot and Kroger, have filed similar lawsuits against Visa, which could led to some policy changes in the future.

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