Last week, Amazon announced its intention to stop accepting Visa credit card payments in the UK, citing high cost as the core reason. Visa debit cards are exempt from the move. As it stands, this will become effective from the 19th January, although there is some speculation that Visa may yield given the size of Amazon.

Prior to Brexit, UK merchants and card holders benefited from a 0.3% cap on credit card interchange fees imposed by the European Commission. Visa therefore took advantage of Brexit to raise interchange fees on cross-border transactions between the UK and EU. 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. Mastercard has made similar moves.

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. With this new move, Amazon has advised customers to switch to another card. A Visa spokesperson commented that “when consumer choice is limited, nobody wins.” Further adding: “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." Finextra takes a deep dive into these sentiments.

Who does this hurt?

According to James Booth, VP head of partnerships EMEA at PPRO, 77% of global online purchases were not made with an international credit card but with local payment options. However, in the UK, 52% of payments were made with a card, with Visa making up 82% of that. 

Such a large market share means Amazon’s decision will impact merchants and consumers first. On this, James Andrews, senior personal finance editor at money.co.uk, commented: “Shops are entirely free to choose whichever payment method they want, but the news that Amazon plans to stop accepting Visa credit cards will come as a blow to the millions of Britons that have them. Notably, Barclaycard, HSBC and Vanquis all use Visa on their credit cards.”

Furthermore, the banning of Visa adds to some other payment limits in the UK, as Andrews elaborated: “With American Express also rejected by many UK retailers, that means people looking for rewards on their spending or trying to split the cost of shopping with a 0% purchase card on Amazon will be effectively forced to choose a Mastercard.”

Luke Massie, CEO of VibePay further added to this: "At a time when consumers are already facing significant financial pressures, the battle between Amazon and Visa will have an immediate impact on their choices."

Massie offered consumers some advice: “Hopefully, Visa and Amazon work out their differences before the ban comes into force on January 19, but in the meantime, it would be wise to check your cards now - and think about switching to a Mastercard if you have the option.”

However, there is a positive side for merchants, Siamac Rezaiezadeh, director of product marketing at GoCardless posited: “This move will prompt other merchants to explore alternative payment options and represents a tailwind for the adoption of newer methods, such as account to account payments.”

What prompted this move?

David Maisey, CEO at MultiPay Global Solutions, added: “Amazon is once again making people rethink the fundamentals of retail. Payment is a crucial part of the process which has for a long-time revolved around card providers and the fees they charge. Even the arrival of mobile payments like Apple Pay and Google Pay did not disrupt card processing in the same way that today’s news will do. With Amazon questioning Visa’s fees, you can be sure that other retailers are now looking at them too.”

An Amazon 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."

Other members of the fintech community concur with the cost of payments. Dan Scholey, COO of Moneyhub commented: “This move from Amazon just highlights the industry’s need for cheaper payment alternatives. Businesses, both large and small are feeling the pinch due to high transaction fees. And with the use of cash declining, card payments are becoming the norm for the majority of transactions.”

The feeling that payment costs are too high generally, and not just for Amazon, is also a concern. Booth commented: “The move from Amazon to ban UK issued Visa credit cards is less so a direct result of Brexit and more to do with the wider sentiment in the payments space. Card fees are too high, businesses are struggling to keep up and are being forced to pass down the cost to the consumer.”

Despite Amazon pointing to cost as their major reason, this isn’t the whole story, as Chris Dinga, payments analyst at GlobalData, said: “Visa holds the second largest credit cards market share in the UK, with close to 20 million cards issued in 2021 - behind Mastercard with around 38 million, according to GlobalData. With both looking to increase fees since Brexit took away their 0.3% cap for online cross-border transactions, Amazon’s decision to only ban one of these companies seems odd – until you remember that Mastercard is Amazon’s credit card issuing partner.”

Neil Smith, head of strategic Partnerships EMEA and APAC at Forter added to this and said: “Amazon will be able to convert a large number of new customers to its Amazon Platinum Mastercard.”

James Hickman, chief commercial officer at Ecospend covered how this move is prompted by the wider payments space: “This decision isn’t purely about cost, there has been a general lack of innovation in the payments space over the last decade, with many of the big players offering the same products that they did a generation ago."

A deeper meaning

Although on the surface cost and competition appear to be the main drivers behind this, many in the fintech community are viewing this as emblematic of a deeper change for the future of payments.

“Amazon’s decision marks a turning point in the modern economy; it’s the moment retailers decided they've had enough of being stung by the high fees charged by the card industry, simply for the privilege of collecting a payment,” according to Siamac Rezaiezadeh at GoCardless.

For many, this move appears to be indicative of the move towards more varied payment options. Booth continued: “This ban signals a welcomed move away from cards towards a more diversified payment ecosystem, that offers businesses and consumers greater choice and lower costs.”

Mick Fennell, business line director of payments at Temenos, said: “Amazon’s decision to ban UK-issued Visa credit card payments is an indication that while card payments continue to lead, they are under threat from the development of alternative payment methods.

Maisey made some predictions on the future of payments based on this change: “Rather than the likes of Visa having a monopoly on the payments industry, these battles, which we expect to see more of in the future, will open the door for fintechs who are taking advantage of technologies such as Open Banking and account-to-account payments. We will then see consumers have more choice than ever before."

The benefits of open banking are affirmed by Alex Reddish, managing director at Tribe Payments, who stated: “Open Banking was created to reduce costs for merchants, open up new customer segments, cement relationships with these customers and drive revenues, this seems like the perfect moment to do just that.”

Dan Scholey, COO of Moneyhub held this sentiment: “Open Banking powered payments are a much quicker and cheaper alternative to regular card payments. Using Open Banking the money leaves the purchaser’s bank account and goes directly into the business’. With an expensive middle man no longer present- businesses could make significant savings, which could ultimately be passed onto the end-consumer.”

However, others offer a range of new alternatives. Maisey stated that with this move Amazon has “fired the starting” on a race for new payment methods, and though the card is not disappearing anytime soon, “the technology exists for retailers to offer new payment methods. Many existing Android payment terminals can already take new alternative payment methods like instant payments.”

Fennel offers similar thoughts for the dismal future of cards: “In time, card payments will be overtaken by direct account to account payments, and the pace of change is increasing exponentially. Account to account payments are gaining momentum through the increased use of tokenisation, open banking and instant payment schemes, and we are seeing real growth in the automation of direct pay-ins and pay-outs on websites.”

Hickman commented on the changing attitude and expectations from consumers: “People want automation and expect better than having to manually enter their card details. They also don’t want to carry around a physical card unless they have to: using a phone is more secure and convenient.”

The benefits for Amazon

Whether this is part of a wider payments movement or a cost spat between two major players, Amazon is the one who wields the most power and ultimately the benefits.

The date of implementation has been chosen after the festive season, meaning the retailer will still gain the benefits. Some Visa users are taking advantage of this extended use, for example Chase has offered its customers 3% cashback on Amazon purchases until the end of 2021.

Smith commented on some of the benefits this brings to Amazon, stating: “At a time when most merchants are working to give customers flexibility by supporting as many different payment methods as possible (including buy now pay later solutions), it could be perceived as a counterintuitive move, but it’s likely that this decision will only compound the company’s already significant market advantage and make it harder for other online retailers in the UK to compete with Amazon.” Smith further pointed out that consumers who enjoy the convenience of Amazon are likely to simply do as Amazon says and switch to other payment methods.

Smith concluded by stating the ultimate benefit fall on Amazon: “It is highly unlikely that other merchants will feel able to take the same bold step of refusing to support Visa credit card payments, and the benefit they feel from a small influx of new customers who insist on paying with Visa credit cards will be greatly overshadowed by Amazon’s increased profitability, enabling them to continue to buy market share.”