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Payment services have become a commodity, Visa is no longer safe

The payment landscape has become increasingly competitive, with a growing number of payment options appearing in recent years. Now, with the establishment of alternative payment choices, the Visa and Mastercard duopoly is challenged from all sides. 

Amazon recently announced that they will stop accepting UK Visa card payments and Visa has responded by saying that it was "very disappointed that Amazon is threatening to restrict consumer choice in the future". Visa is right to point out the importance of consumer choice, however, that may just be their achilles heel. With more (and arguably better) choices than ever before, the incentive to move away from credit cards, and possibly traditional payments all together, is becoming stronger. 

Payments have become a commodity

Merchants need payment services, but they are no longer dependent on any particular provider. They now have a large choice to select from and can simply switch to another service provider if they become discontent with their experience. Payments have thus become no different from any other commodity. 

Merchants are likely to choose the payment services that provide smooth processes and low fees. To win and retain customers, payment services need to put their customers' expectations at the heart of their business strategy. With an abundance of options such as Paypal, BNPL, direct debits and recently open banking payments and even crypto, Visa no longer has a firm leg to stand on. 

Open banking gives bank cards a run for their money 

Two critical components of payments are price and coverage. Open banking has become a challenger to card payments due to having amazing coverage, being available to everyone with a bank account. However, when it comes to price open banking is well ahead- Open banking payments cost close to zero for the merchants. On top of this, open banking allows third party providers to move money directly from bank accounts to merchants without entering any details manually, which makes the checkout experience much smoother for first-time purchases.

Banks do not charge payment providers for initiating A2A payments and the number of these types of providers is growing. The barrier to become an open banking payments company is low, creating a pressure on the price for payments. Open banking companies are providing a well-standing alternative to bank cards with A2A payments, with much lower fees. Successful examples include Vyne from the UK as well as Trustly and SOFORT from Sweden.  

A wake up call for all payment providers

The tale of Amazon and Visa should come as a wake up call for all payment services including open banking providers – they are all just as replaceable as Visa is. Amazon explained that their choice came down to the result of much too high card transaction processing fees and, for any merchant, if there are better alternatives it only seems logical to switch payment providers. In Europe and the UK where open banking is regulated, open banking payments will inevitably become free of charge to merchants, similarly to open banking data

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Rolands Mesters

Rolands Mesters

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Nordigen

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25 Oct 2021

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Riga

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This post is from a series of posts in the group:

Open Banking

Open Banking regulation, innovation and technology and it's potential to revolutionise the Financial Services Industry.


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