​Visa says consumers are the real victims in a high profile battle over merchant fees with Walmart now that the retailer is threatening to ban the credit card from its Canadian stores.

The retailer announced last weekend that "unacceptably high fees" has prompted it to stop accepting Visa cards beginning July 18 at stores in Thunder Bay, Ont. Walmart says it then plans to reject the cards at its more than 400 other Canadian locations.

"We believe Visa's fees should be lower for everyone, whether they are a large retailer, small retailer or a charity," Walmart said in a statement to CBC News. "Canadians deserve better than paying a hidden fee that is four times higher than consumers pay in other countries. We are taking a stand for our customers because Visa's high fees can result in increased prices."

But Visa says the retailer is being disingenuous and unfair by using consumers as bargaining chips.

"Walmart is unfairly dragging millions of Canadian consumers into the middle of a business disagreement that can and should be resolved between our companies," Visa wrote in an open letter published Thursday morning in several Canadian daily newspapers.

While declining to break down how much it pays to whom, Walmart says it pays more than $100 million in fees annually to credit firms like Visa, MasterCard and Discover for processing sales transactions at a Walmart store.

Across Canada, credit card companies charge a collective $5 billion in such "interchange" fees every year, and most cards average about 1.5 per cent of the value of any transaction.

Visa says it already gives Walmart one of the lowest rates of any merchant in Canada. But Visa says the world's largest retailer wants more, demanding to pay a lower fee than local groceries, pharmacies, convenience stores, charities and schools pay.

"They are using their size and scale to give themselves an unfair advantage," Visa's letter said.

Security also an issue

While the dispute is mainly about money, the two sides are also engaged in a fight over security. Walmart is suing Visa in the U.S. to force it to require chip-and-PIN technology on its cards, which is more secure than the standard magnetic stripe and signature combo.

Walmart wants customers to have to use encrypted chip-and-PIN technology, but Visa wants to gives customers the option.

"This suit is about protecting our customers' bank accounts when they use their debit cards at Wal-Mart," Walmart said last month when the lawsuit was announced. "We have long advocated for 'PIN verification' as opposed to the less secure signature verification for debit transactions. PIN is the only truly secure form of cardholder verification in the marketplace today, and it offers superior security to our customers."

Visa also commands a higher fee — about five cents more per transaction — to process a sale made via signature, versus one made via PIN.

Watching with interest

Retailers across Canada are watching the skirmish with interest but most were unwilling to comment or indicate if they are considering taking up their own arms against the dominant credit card provider.

Convenience store chain Alimentation Couche-Tard was the exception. It said it's sympathetic to Walmart's move after lobbying for years to reduce credit card fees in Canada, which are among the highest in the world.

"Lower credit card fees would mean lower costs to the consumer," said spokeswoman Karen Romer.

The Retail Council of Canada says high credit card fees are unacceptable to retailers.

Walmart said it pays more than $100 million in fees annually for customers using credit cards like Visa, MasterCard and Discover. (Joe Raedle/Getty Images)

"Some merchants are looking at voting with their feet so that's clearly what's motivating Walmart," said Karl Littler, the group's vice-president public affairs. "I don't think we'll see the floodgates open [but] we understand the frustrations to cross the entire retail market,"

Canadian retailers have long complained about the high interchange fees they pay credit card companies.

The retail council, which represents retailers including Walmart, is calling on the federal government to intervene to mandate lower fees for all merchants. Visa and MasterCard voluntarily agreed in late 2014 to reduce interchange fees by about 10 per cent under the threat of action by the previous Conservative government.

The move would save as much as $400 million a year. Littler called the cuts modest because Canadian fees are still five times higher than in Europe and three times the levels in Australia.

In the House of Commons on Wednesday, Finance Minister Bill Morneau said the government is waiting for a report on the voluntary agreement from Visa and MasterCard before deciding "how we can ensure this market stays competitive in the future."

Costco switched to MasterCard

Every retailer, especially those with thin margins, is looking at ways to cut costs and offer more value to customers, said Charlie O'Shea, lead retail analyst with Moody's Investors Service.

"You will see more retailers addressing the issue over the next 12 months," he said from New York. "I don't think Walmart will be alone in having discussions with its credit card providers."

Still, O'Shea said he thought Costco's switch in late 2014 from American Express to MasterCard would have signalled bigger changes to come.

"That in my view was the deal that would 'wake up' other retailers. The Walmart deal is important but the Costco deal was the first."

John Williams, a retail consultant with the J.C. Williams Group, said Walmart's move to ban Visa cards will cause a stir in Canada's retail sector but likely won't have an enormous impact.

He said Walmart's reputation will get a boost for trying to save customers money. But large retailers whose strategy is to provide services rather than low prices will continue to accept the most popular credit card.

"An extra point of gross margin will not be a big difference, but if you're fighting it out on nickels and dimes, it becomes an issue."