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In a case of bigtech v big scheme, Visa’s credit cards will no longer be able to be used for transactions on Amazon’s platform.
Amazon has declared that, as of 2022, Visa’s UK credit cards will not be accepted as payment across its global platform.
In an email to UK customers that was sent out on November 17, the bigtech platform stated that: “Starting 19 January, 2022, we will unfortunately no longer accept Visa credit cards issued in the UK, due to the high fees Visa charges for processing credit card transactions.”
“The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers,” Amazon said in a press statement. “These costs should be going down over time with technological advancements, but instead they continue to stay high or even rise.”
However, the company will still allow the use of Visa debit cards.
The move has sent ripples through the market, and has made the headlines throughout the UK and even further afield. The reaction has even ended up prompting a response from the UK’s Payment Systems Regulator (PSR).
“We note the action Amazon is taking and are engaging with all relevant parties to understand the impact on people and businesses,” a spokesperson for the PSR said in a statement.
Going forward, the PSR has decided to introduce an additional phase of work to its recently published market review into card acquiring.
The review will look into how well this market is working, including the issue of increasing card fees. “If necessary, we will intervene to address any issues we identify. We will provide more information on this work with our final strategy, which will be published in the new year,” the spokesperson confirmed.
“With open banking maturing and the recent PSR comments regarding competition, this announcement is perhaps a marker setting the scene for a possibly turbulent 2022 in UK payments,” predicted Martin Koderisch, principal at Edgar, Dunn & Company, which carried out the EU’s review into the Interchange Fee Regulation (IFR) last year.
UK opens up a third front
The latest action against Visa by Amazon, follows a long running dispute between the two companies over fees.
Although Amazon’s beef with Visa is potentially global, the choice of jurisdictions chosen by Amazon to fight its battle is revealing.
In September, Amazon took a similar action against Visa in Australia by announcing customers that used its cards in the country would face a half-percent surcharge on transactions from November 1. Prior to this, Amazon also announced surcharging of Visa cards in Singapore.
Although card scheme rules forbid surcharging, interchange fee regulations first introduced by the Reserve Bank of Australia in 2003 also prohibited the use of no-surcharging rules. Amazon was, therefore, free to impose its penalties on using Visa cards to make its point.
To encourage customers to ditch Visa as their default card options, Amazon even added the sweetener to cardholders by offering an A$20 gift card.
However, the choice of the UK is a significant escalation.
Firstly, surcharging is not just against card scheme rules, it is prohibited under UK law. Since January 2018, merchants have been prevented from levelling fees on card transactions as part of the Consumer Rights (Payment Surcharges) Regulations 2012. As such, to challenge Visa in the UK, Amazon has had to make the bold move to ban all Visa credit cards across its platform.
Secondly, the UK is one of the largest e-commerce markets globally, and arguably the most important payment markets for Visa in Europe. Visa is by far the most dominant card brand in the UK accounting for more than 80 percent of purchases from UK issued payment cards, according to UK Finance.
However, there is a caveat to this. Although Visa currently has a virtual monopoly of debit cards in the UK accounting for 94 percent of all purchases in 2020, credit cards represent a relatively small share of the cards issued on its network. Visa accounts for less than a quarter of credit card transactions processed.
The banning of Visa credit cards by Amazon, therefore, makes sense as an outright ban on all Visa cards in the UK would have been commercial suicide given the card network’s dominance of debit cards.
As such, although Amazon’s gesture makes a significant headline statement, it is not quite as aggressive as it first seems.
Inspiring others
For Julie Fergerson, chief executive at the Merchant Risk Council, this move is significant because it is the first merchant in a very long time to have taken a visible stance against the card schemes. “I suspect other merchants are now discussing similar options.”
Yet others were more cautious.
“It doesn’t necessarily have an effect on other merchants, but it is a signal of the struggles that retailers go through when it comes to increasing card fees,” said Alex Ellwood, senior vice-president at payments consultancy CMPSI.
The fact that most in the UK pay with debit cards as opposed to credit cards may mean that this move has less of an impact, said Fergerson. “It is some volume, but not a lot. In speaking with our merchant members, they are inspired by the pushback over the ever-increasing fees and are definitely considering doing similar tactics.”
Koderisch further pointed out that Visa’s credit card has far less of a market share than Mastercard in the UK.
“Although Amazon’s actions will impact some consumers and merchants who use the platform overall the impact will most likely be benign,” he argued. “Few consumers will be dependent on Visa credit as their only means of payment and will simply switch to another payment method.”
However, others feel it is a sign of a system that is no longer functioning well.
Amazon’s decision is further evidence, if any was needed, that existing payments are broken and stacked against the merchants that rely on them, said Karl Macgregor, chief executive at Vyne Technologies, a payment service provider.
“What makes this news particularly striking is that this is one of the biggest brands in the world recognising that merchants on its platform truly are at the mercy of payment giants,” he continued, complaining that businesses are already forking out thousands of pounds per annum, only to be greeted with mid-contract price hikes, which are more often than not imparted on the consumer.
Responding to Amazon’s decision, Visa has said: “We are very disappointed that Amazon is threatening to restrict consumer choice in the future.”
“When consumer choice is limited, nobody wins,” a spokesperson for the card scheme continued. “We have a long-standing relationship with Amazon, and we continue to work toward a resolution, so our cardholders can use their preferred Visa credit cards at Amazon UK without Amazon-imposed restrictions come January 2022.“
The Brexit factor and proxy war
Although Amazon initially targeted Visa by surcharging Visa cards in Singapore and Australia, it is possible that this was just a proxy war for disagreement in the UK and Europe.
The UK’s withdrawal from the EU, and therefore its internal market, resulted in the UK becoming a third country in relation to the EU's IFR and vice versa.
“Amazon’s decision is a big deal but perhaps no surprise given their EU-based payment processing model,” said Koderisch.
Data released by the British Retail Consortium this week shows that retailers in the UK and the European Economic Area now face an estimated £150m a year cost increase to accept cross-border card payments, with British retailers alone shouldering an extra £36.5m, or £100,000 every day.
With the intra-regional rate now gone, major card brands have raised interchange fees on some online or card not present transactions by up to 475 percent, according to the data.
Amazon has been infuriated at Visa’s fee rises, both scheme fees and reclassification of UK-EU cross-border transactions, according to Mark Falcon, chief executive at antitrust consultancy Zephyre. “These hit Amazon especially hard, as an online and cross-border merchant."
“Visa have aggressively gone after the reversion to cross-border fees for UK transactions,” agreed another source, acknowledging that this has also been the case with Mastercard.
Historically, Amazon has processed and acquired most UK volume from Luxembourg, so are potentially heavily affected by this fee increase compared with merchants who still acquire domestically, experts told VIXIO.
However, whether Amazon’s decision is effective or not is yet to be determined.
“The same thing happened when Walmart stopped accepting Visa in Canada and Kroger stopped accepting Visa in the US,” pointed out Falcon, adding that this was only temporary, but resulted in lower Visa fees for very large merchants.
However, it did not have a positive impact on any other merchants, he continued. “This could therefore put smaller UK merchants at an even greater competitive disadvantage to Amazon. This is a reason more than ever for regulators to intervene.”
Alternative payments solution
Given Amazon’s action against the card scheme, a potential solution for the e-commerce platform would be to enable alternative payments using instant payments rails. However, despite the fast growth of instant payments schemes around the world and the development of open banking solutions, Amazon appears reluctant to offer alternative non-card payment types across its platform. However, it did recently announce it was enabling acceptance of the PayPal-owned Venmo service across its storefront in the US.
Sources have told VIXIO that Amazon is still reluctant to enable account-to-account payments until it can gain greater control of the user experience.
In particular, a payment using an account-to-account method or even some third parties like PayPal will typically take a user off the Amazon site for payment authentication, and as good as the bank authentication processes are getting, this could still be a big problem for the bigtech. This could change, however, as delegated authentication flows and/or variable recurring payments (VRPs) are introduced which could avoid this step.
The Competition and Markets Authority in the UK has recently accepted the Open Banking Implementation Entity’s (OBIE) recommendation to delay the implementation of VRPs until July 2022.
