Brexit partly behind controversy, but experts say rift deepens
Mazon and Visa are at war – or so it seems from the outside.
Amazon today took the highly unusual step of announcing that it will stop accepting payments using Visa credit cards issued in the UK from January 2022. Visa said it was “very disappointed” with the decision.
The controversy is over the fees charged by Visa, which have recently increased due to Brexit. But industry watchers say the disagreement runs deeper and there is a fight over the future of payments.
At the heart of this issue is something called interchange fees. This is a small fee levied by Visa and other card networks on every transaction made using your card. Visa charges a fee to cover the cost of processing the payment.
Amazon said it was taking action in response to the “high charges,” without specifically explaining what they were.
The European Union introduced regulation in 2015 that imposed an interchange fee of 0.2% for debit card transactions in the bloc and 0.3% for credit cards. The EU said at the time that the move would save consumers an estimated €6 billion in “hidden fees”.
Britain’s exit from the EU meant that operators were no longer bound by these rules. The Financial Times reported earlier this year That Visa plans to increase its cross-border interchange fee from 0.3% to 1.5%.
The British Retail Consortium said today Card fees have increased by £150 million on sales between the UK and Europe so far this year – In some cases a five-fold increase.
Andrew Cregan, payment policy adviser for the British Retail Consortium, said: “British merchants alone will pay an additional £100,000 per day just to process cross-border transactions, preventing British exports to Europe.”
However, the disagreement appears to be deeper than just the UK and any Brexit-related changes. In the past few months, Amazon has introduced a surcharge on customers using Visa credit cards in Singapore and Australia, citing Visa’s high fees.
Experts say the e-commerce giant is looking to wean consumers away from cards altogether.
David Massey, CEO of Multipay Global Solutions, said: “Amazon is firing the starting gun in the race for new payment methods.”
Advances in online banking and regulation known as ‘open banking’ mean that Amazon can now theoretically plug directly into a customer’s bank account and take payments directly from the bank. It would cut out card companies altogether, leaving Amazon with a bigger piece of the pie.
Roger D’Eth, Head of Ecommerce at TrueLayer, said: “We are looking at open banking to more merchants, which provide instant, bank-to-bank payments.
“Fundamentally, cards were not made for online commerce and have been retrofitted to digital checkout, creating complexity and cost for merchants and friction for customers. This is why every merchant, including Amazon, has an alternative. And looking at native payment methods digitally.”
Amazon indicated broader ambitions in its statement on Visa today, saying: “With the rapidly changing payment landscape around the world, we look forward to adding and promoting faster, cheaper and more inclusive payment options in our stores on behalf of customers.” Will continue to innovate for the world.”
While that may be a long-term ambition, in the short term experts say Amazon and Visa are likely to settle their differences before reaching the January deadline.
“I think it’s a negotiating strategy from Amazon more than anything,” said 11FS advisor Simon Taylor. “They will negotiate these charges with their acquiring bank partners and card schemes directly as a major merchant.”
Given the vast scale of Amazon, Visa may have to yield. Shares of the company fell 3.5% at the New York open as investors reacted to news of the ban to show how seriously they take the issue.
A Visa spokesperson said: “We are very disappointed that Amazon is threatening to restrict consumer choice in the future. When consumer choices are limited, no one wins. We have a longstanding relationship with Amazon, and we continue to work toward a resolution.”