Some battles seem eternal, destined to be waged again and again — in some cases with predictable outcomes.
Within payments, and within commerce in general, one ongoing dispute exists with retailers on one side … and on the other side lie the payment networks, including Visa and Mastercard.
The flashpoint: interchange fees.
But by bit, here, there, but not everywhere, Amazon has been chipping away at Visa’s presence across its platform.
The news came this week, of course, that beginning in January 2022, eCommerce juggernaut Amazon will stop accepting payments made with Visa in the United Kingdom.
Read more: UK-Issued Visa Credit Cards No Longer Accepted by Amazon Starting 2022
Now, that doesn’t mean that Visa will disappear across the pond entirely. As we noted here, Amazon’s customers will still be able to use Visa debit cards over there, and of course they can turn to competitors like Mastercard and American Express.
This movie has played out before, of course, and the key plot points, for lack of a better term, hinge on interchange fees. Simply put, now that Brexit has become reality, Visa can (and is) charging higher interchange rates to merchants (which would include Amazon’s sellers) in the U.K. When Britain was in the European Union, Visa and other card networks had to abide by a cap of 30 basis points per transaction done with a credit card. In the U.K. that ceiling, post-Brexit, moves to 1.15%. Debit card caps remain 20 basis points, so it’s easy to see the economic value, for Amazon and its sellers, to keep debit in place.
Per Amazon’s statement: “The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers. These costs should be going down over time with technological advancements, but instead they continue to stay high or even rise. As a result of Visa’s continued high cost of payments, we regret that Amazon.co.uk will no longer accept UK-issued Visa credit cards as of 19 January, 2022. Customers can continue to use all debit cards (including Visa debit cards) and other non-Visa credit cards to shop on Amazon.co.uk.”
As to how it all plays out: Visa has said it is working on a resolution so that consumers in the U.K. can keep using Visa cards “without Amazon imposed restrictions.” This might mean, of course, that Visa opts not to boost the charges much, if at all, beyond the same 30 basis point cap that had been seen before. Or perhaps there might be some of the deal worked out.
Amazon certainly seems to be going full-bore on its attempt to put the pressure on Visa — perhaps picking one card giant to use as a warning to all the issuers. In other news, Amazon is reportedly considering dropping Visa as a partner on co-branded cards.
We previewed this dynamic a bit over the summer. Back in August, Amazon emailed a statement to PYMNTS signaling that it would put a surcharge in place in Singapore for transactions that use the Visa card. That 50 basis point surcharge took effect in September.
The language from Amazon tied to the Singapore announcement was/is quite similar to this week’s missive on the U.K.: “The cost of accepting card payments continues to be an obstacle to providing the best prices for customers. These costs should be going down over time with innovation and technological advancements, which allows merchants to reinvest savings into low prices and shopping enhancements for customers. Yet, despite these advancements, some cards’ cost of payments continue to stay high or even rise.”
Amazon’s goal, it has stated, is to become “less card centric.” And readers of this space know that for the networks, too — Visa included, of course — the goal is to become a network of networks, marked, increasingly, by the value and new use cases enabled by its rails, in effect moving beyond the card.
See: Visa’s New Head of Global Business Solutions Sees A ‘Network of Networks’ Strategy for B2B Payments
In the meantime, though, credit spending is gaining ground though at least in the U.K. still lags debit. To get to a guesstimate of what the impact might be in the Visa/Amazon spat — and this is quite general — consider the fact that UK Finance said just this week that in the month of August alone, there were 1.9 billion debit transactions, and 334 million credit card transactions.
Past May be Prologue
Credit card spending, in terms of balance growth, was actually down about 7%. It becomes a bit clearer, then, that this is a market that is not hugely leveraged to credit spending. Visa’s latest results show that total debit and credit spending in Europe is about 19% of the trailing 12-month volume (the U.K. is not specifically broken out).
Not an insignificant market for Visa, of course, nor for Amazon. Indeed, for Amazon, the U.K. is roughly a $26 billion market, a bit less than 7% of the eCommerce firm’s total top line. Of course, at least some of that volume comes from credit …
… and so, we posit that both companies have enough proverbial skin in the game to keep talks going, and to reach that aforementioned resolution.
Past is prologue: It seems like a lifetime ago, but back in 2016, Walmart and Visa got into a somewhat similar tussle on interchange fees, and then resolved it all (and Visa, of course is still accepted at that retail giant). In the latest goings on, this time between Amazon and Visa, the saber rattling is real, though the battle may end quietly.
Also read: Amazon’s Singapore Surcharge May Signal Sea Change Ahead On Cards
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