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Amazon to ban Visa credit cards in the UK

Amazon to ban Visa credit cards in the UK

Amazon UK is to stop accepting credit cards from Visa, blaming the ban on the 'high cost of payments'.

The move, which will take affect from 19 January, will exempt purchases made with Visa debit cards.

Informing customers of the move, Amazon declared it had taken the decision due to "high fees Visa charges for processing credit card transactions" on its UK cards.

A spokesperson told Sky News: "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."

Visa has moved to take advantage of Brexit to raise interchange fees on cross-border transactions between the UK and EU. Prior to Brexit, UK merchants and card holders benefitted from a 0.3% cap on credit card interchange fees imposed by the European Commission.

But with the country withdrawing from Europe, Visa is increasing the fees for online and over-the-phone purchases to 1.5%. For debit card transactions, the rate will go up from 0.2% to 1.15% in January, inline with similar moves from Mastercard.

Amazon customers who use a Visa credit card as their default payment option have been advised by the online giant to switch to another card.

Visa expressed disappointment at Amazon's threat to "restrict consumer choice in the future".

"When consumer choice is limited, nobody wins," a spokesperson says. "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."

In the last few months Amazon has introduced surcharges on customers using Visa credit cards in Singapore and Australia, again citing Visa’s high fees. Given the scale of Amazon, Visa may be forced to yield if the e-commerce giant extends the policy across its global locations.

Peering ahead, a larger threat to Visa's business could come in the form of Open Banking, giving Aamazon the opportunity to cut out payment cards altogether by introduing account-to-account payments that plug directly into consumer bank accounts.

Comments: (14)

Roberto Garavaglia
Roberto Garavaglia - Innovative Payments & blockchain Strategic Advisor - Milan 17 November, 2021, 11:001 like 1 like

Less than a couple of weeks ago, Amzon has given green light on Venmo (PayPal) payments acceptance for US shopper. Now, is banning Visa cards for UK shopper. Both the moves seems to me quite strictly correlated. Next step? ... open the doors to PayPal payments acceptance also in UK? ...

A Finextra member
A Finextra member 17 November, 2021, 11:16Be the first to give this comment the thumbs up 0 likes

Card costs for merchants (not just Visa) have been increasing substantially over the last few years and (until now) merchants have been powerless to do anything about it. I'm pleased to see Amazon taking a stance on this as it just goes to show how big (and costly) the problem has become when even one of the largest merchants cannot negotiate against rising costs and has to ‘give notice’. These problems have been highlighted to the regulators both in the UK and the EU for quite some time. Sadly it's the end customers that are most impacted by their lack of willingness to address the problem and curb these rising fees once and for all.

A Finextra member
A Finextra member 17 November, 2021, 11:381 like 1 like So they are happy to benefit from all the innovation and the spend uptick that is enabled by the card schemes and yet unwilling to pay for it. Without online card payments, Amazon cannot exist and without adequate revenue, card schemes cannot exist. Mr. Bezos needs to be careful while flexing his muscles.
Hitesh Thakkar
Hitesh Thakkar - SME - Fintech startups (APAC and Africa) - India 17 November, 2021, 11:48Be the first to give this comment the thumbs up 0 likes

Increase in acquiring fee for UK shoppers for VISA card purchase is collateral damage of Brexit and more of business call whether VISA and Amazon like to create more inconvenience to VISA card holders and thus the issuers i.e. banks in UK issuing cards are getting affected.

Solution can be as simple as VISA and Amazon ask banks to issue co-branded VISA cards which will have low processing fee :)

Carl Scheible
Carl Scheible - AP Ventures Ltd - Sydney 17 November, 2021, 12:092 likes 2 likes

The root of the problem here is not Amazon or Visa but BREXIT!!!!

A Finextra member
A Finextra member 17 November, 2021, 14:044 likes 4 likes

@Carl Scheible.I think you’re mistaken about Brexit being the root of the problem here and to be honest it becomes a little tiresome hearing Brexit being quoted as the source of all the UK’s problems. 

All that Brexit did was create the opportunity for Visa (and Mastercard) to increase their fees for cross border transactions. They were not under any obligation to increase their fees but nevertheless decided to impose significant additional costs on merchants simply because they could. This at a time when merchants are struggling to survive following the Covid pandemic.

For affected merchants the card interchange fee for cross border credit cards increased from 0.3% to 1.50%, just like that! Kerrching!

…….and that’s just one small part of their apparent greed. Card Scheme fees is another growing problem. EuroCommerce, an EU retail trade association, estimates that increased costs for card acceptance is costing EU merchants over 100 million euros per month.

Chris Hemsley, the Managing Director of the UK’s Payments Regulator commented on it by saying in a speech on 5thOctober:

“Meanwhile, we have seen recent announcements of increases in certain card fees – focused on cross-border transactions – as previous regulatory constraints have been removed, as the UK left the European Union. 

However, the absence of specific regulatory caps is not itself sufficient reason to increase particular fees, particularly if these increases are not obviously linked to costs.

Such pricing behaviour poses real questions about how well this market is working, and not just in the context of cross border interchange fees.”

He carried on to say: “Our work on card acquiring has set out analysis that suggests that scheme fees paid to Mastercard and Visa approximately doubled between 2014 and 2018.”

Is it therefore any wonder that the likes of Amazon are saying enough is enough?

 

A Finextra member
A Finextra member 17 November, 2021, 16:39Be the first to give this comment the thumbs up 0 likes

I like the timing - Jan 19th - into that post-Christmas, post high street sales dead zone to minimize impact.

But it will still be interesting to monitor levels of disruption... The power of consumers' habits and levels of inertia toward change should never be under-estimated.

A Finextra member
A Finextra member 17 November, 2021, 17:432 likes 2 likes

Of course, if Amazon had a business registered in the UK and paying tax in the UK they would not be subject to the UK/EU interchange of 1.5% but would instead pay the domestic interchange of 0.3%.

Jeremy Light
Jeremy Light - pingNpay - London 17 November, 2021, 18:401 like 1 like

Statista shows Amazon UK sales in 2020 were $26bn or about £20bn. Statista also estimates Visa has a 82% market share of UK card payments, so roughly £16bn of Amazon annual UK sales are paid using Visa debit and credit cards.

UK Finance stats show online card purchases run at about £23bn per month and that credit cards account for about 24% of this total.

Therefore roughly 24% x £16bn = £3.8bn of Amazon sales are paid each year using Visa credit cards. At 1.5% that would cost Amazon £58m per year, an increase of £46m over what it is currently paying.

Even so, Amazon is still accepting Visa debit cards which will cost it about £139m next year instead of £24m currently, a huge increase of £115m.

These extra costs will be borne ultimately by consumers, therefore it is self-evident why Amazon has made the decision to at least eliminate the additional credit card costs.

Let's hope Amazon embrace new innovations to move away from cards and their rent-seeking fee structures, to benefit the consumer in both their pocket and in the online experience.

An obvious measure for Amazon is to use open banking to mitigate the debit card costs. Also, with its partnership with Affirm, a launch of BNPL for Amazon UK busine must, erm.. on the cards. 

A Finextra member
A Finextra member 18 November, 2021, 01:50Be the first to give this comment the thumbs up 0 likes

The key question for me is Amazon.co.uk a UK company? Probably not as based in Ireland to minimise UK tax. As UK has left EEA a transaction between a UK Visa cardholder and Amazon.co.uk is now a cross border transacton. Changes below and only for card not present transactions - online and telephone orders.

Debit Interchange 0.2% to 1.15%

Credit 0.3% to 1.50%

So Amazon save on tax but will pay higher interchange.

Of course interchange is only part of the equation as scheme fees have been rising as well. This is really a consequence of the merchant lobby taking the former associations to court on interchange and the banks not wanting the threat of the potential liability, so floated the schemes off as listed for profit organisations.

I'd also note the retailers reluctance to help finance the new European Payments Iniative designed to challenge the Visa / MasterCard dominance with lower cost processing. Maybe it's more cost effective for the big merchants to negotiate with Visa and MasterCard than try to build a new one competitor with non accetpance of UK Visa credit cards part of that strategy.

Lots of moving parts and will await the outcome with interest.

Chetan Ghadge
Chetan Ghadge - Wipro - Pune 18 November, 2021, 06:27Be the first to give this comment the thumbs up 0 likes

Bound to happen as Visa and MC find their match with behemoths like Amazon. 

On the other hand I won't be surprised to see Amazon trying to use this opportunity and  get foothold into payments business with its own Amazon pay offering. 

A Finextra member
A Finextra member 18 November, 2021, 07:26Be the first to give this comment the thumbs up 0 likes

I was on a panel yesterday with the PSR and Pay.UK and this was a source of discussion. The increasing fee's for the usage of cards, and actually moving away from using cards in order to drive competition. They are very aware of this issue and are going to be tackling it, but I do agree that Brexit is a very good scapegoat in some instances for price hikes. Visa have made a couple of decisions recently that both increases costs to merchants but equally those providing new payment solutions on their rails. Perhaps this will force some further consideration by the scheme. 

A Finextra member
A Finextra member 18 November, 2021, 16:41Be the first to give this comment the thumbs up 0 likes

I'm pleased to see Amazon stand up to Visa in the same way many merchants have chosen to stand up against the extortionate charges from Amex.

For Visa to say this move will "restrict consumer choice in the future" shows such a high level of arrogance; they have no real argument. All customers have choice and Amazon is a customer of Visa.

Both Mastercard and Visa have taken advantage of the UK's departure from the EU regarding interchange. Amazon takes advantage of the loopholes in the tax laws that exist from country to country. None of these companies are short of a bob or two however, here we are in the UK with record inflation, as the end result of all these manoeuvres is that the consumer pays.

The EU did the right thing to limit the interchange charges, the UK should do the same. At the same time, in this global economy, Amazon should be held to account regarding its taxes which would put something back into the countries that enable its business to flourish, rather than use these funds to enable jollies for the chosen few on ostentatious trips into space, also negating the good work done to reduce carbon emissions by its core business staff.

 

Jeremy Light
Jeremy Light - pingNpay - London 19 November, 2021, 22:39Be the first to give this comment the thumbs up 0 likes

correction to the analysis in my post on 17 Nov 21

Visa is increasing interchange on UK card payments to EEA retailers, interchange to UK retailers remains the same.

Amazon's published revenue is different to the value of goods and services sold on its platform. Amazon sells to consumers and operates a marketplace for third parties to sell products and services to Amazon customers. There is no published figure but I estimate from Amazon's 2020 accounts that Amazon UK's gross merchandise volume is £26bn.

36% of UK ecommerce is cross-border (source IMRG) and assuming the EEA accounts for 60% then about £6bn of Amazon UK sales are from EEA retailers. Visa has 82% market share of UK card payments (Statista), so roughly £5bn of Amazon annual UK sales are paid using Visa debit and credit cards to EEA retailers.

UK Finance stats show that credit cards account for about 24% of online card payments.

Therefore roughly 24% x £5bn = £1.1bn of Amazon UK sales from the EEA are paid each year using Visa credit cards. At 1.5% that would cost Amazon £17m per year, an increase of £13m over what it is currently paying.

Even so, Amazon is still accepting Visa debit cards for EEA sales costing it about £41m next year instead of £7m currently, a huge increase of £34m. Overall, I estimate Amazon UK will pay £131m in card interchange next year, a 35% increase even with banning Visa credit cards. Also, remember that interchange is just one component of card fees, so the total bill will be higher still.

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