In mid-November Amazon revealed its intentions to swiftly pivot away from accepting UK-issued Visa credit cards. What does this notable shift mean for the retail industry?
The tech titan blamed Visa’s high fees for its decision to no longer accept payments on its site using UK-issued cards from the provider.
Amazon said: “Starting January 19, 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.”
Amazon urged users to update their payment information, even offering impacted customers £20 off their next purchase using an alternative method of payment.
“It’s quite a power move by Amazon, leveraging its position in the market and strong relationship with customers to put pressure onto Visa,” explains Retail Week research director Lisa Byfield-Green.
“Many would have expected that Visa would have bowed to this pressure, but that does not yet seem to be the case.”
High transaction fees charged by card issuers have long been an issue for retailers. With Amazon processing so many purchases daily, it is perhaps unsurprising that it has grown impatient with this system.
Following the UK’s exit from the EU, Visa increased ‘interchange fees’, which are paid by a merchant’s bank account whenever a customer uses a credit or debit card for a purchase.
Fees were raised from 0.3% to 1.5% for credit transactions on cross-border transactions between the UK and EU. For debit transactions, fees increased from 0.2% to 1.15% on cross-border transactions between the UK and EU.
According to the Financial Times, Amazon also lambasted Visa over the fees it adds to protect against fraud.
“Amazon invests heavily to protect our customers from fraud and abuse, yet Visa’s pricing remains high, while merchants remain responsible for fraud,” the retailer said.
Amazon’s vendetta against Visa is visible globally, with the company introducing surcharges in Singapore and Australia earlier this year. It is also considering dropping Visa as its partner for its branded credit card in the US.
Mastercard has so far managed to escape Amazon’s wrath, although it also increased its interchange fees post-Brexit and currently partners with Amazon for the UK version of its branded card.
“With retailers now spending over £1bn to accept card payments, it is no surprise many are frustrated by these surging fees. Ultimately, it will be consumers who suffer higher prices”
Andrew Cregan, British Retail Consortium
However, Amazon isn’t the only one losing patience with the Visa and Mastercard duopoly as transaction fees increase globally with more consumers shopping online.
“Card payments accounted for more than four-fifths of UK retail spending in 2020, with just two firms facilitating 98% of these payments,” says British Retail Consortium payments policy advisor Andrew Cregan.
“With retailers now spending over £1bn to accept card payments, it is no surprise many are frustrated by these surging fees.
“The Payment Systems Regulator must urgently intervene to tackle these anti-competitive card charges and both the government and Parliament should ensure that they do.
“Ultimately, it will be consumers who suffer higher prices unless these spiralling costs can be brought to heel.”
As a result, retailers are looking for new payment methods that leave the traditional card – and its accompanying costs – behind.
TrueLayer head of ecommerce Roger De’Ath suggests its open banking approach could be the future of payments.
Open banking is a new system that allows third-party applications to access and control transactions within consumer bank accounts – so, instead of paying by card, customers pay through a direct bank transfer.
“Cards were not built for online commerce and have been retrofitted into digital checkouts, creating complexity and cost for merchants and friction for customers”
Roger De’Ath, TrueLayer
“The way that you make this payment is you authenticate directly with your bank. You don’t have to type in a card number, you don’t have to remember any of those details, you don’t have to save them on a website,” De’Ath says. This, in turn, saves retailers the cost of transaction fees.
Following Amazon’s decision, De’Ath adds: “Fundamentally, cards were not built for online commerce and have been retrofitted into digital checkouts, creating complexity and cost for merchants and friction for customers.
“That is why every merchant, including Amazon, is looking at alternative and digitally native payment methods.”
According to the UK’s Open Banking Implementation Entity, more than 2.5 million UK consumers and businesses use open banking products “to manage their finances, access credit and make payments”.
The rise of open banking has not been ignored by card issuers. In June, Visa acquired open banking platform Tink for more than $2bn.
Tink allows customers to connect directly to their bank accounts while using different apps and services. Its technology already allows it to integrate with 3,400 financial institutions.
Amazon revealed this month that it would partner with Venmo, the digital mobile payment provider owned by PayPal, in the US. Venmo offers speedy peer-to-peer money transfer by linking to users’ bank accounts or debit or credit cards, similar to Monzo in the UK.
“We understand our customers want options and flexibility in how they make purchases on Amazon,” Ben Volk, Amazon’s director of global payment acceptance, said of the move.
The partnership is particularly notable as Amazon does not accept payments from Venmo owner PayPal.
“It will be interesting to see where Amazon is heading with payments in the longer term,” Byfield-Green comments.
“It has recently introduced the facility for customers to pay for large purchases, such as TVs and electronics, in a series of interest-free monthly payments.”
Similarly, retailers are taking note of the buy-now, pay-later (BNPL) providers that experienced a surge of popularity during the pandemic ecommerce boom. The BBC reported that 17 million UK shoppers have used a BNPL service.
While customers repay interest-free instalments, merchants are still charged transaction fees from the service provider directly when using this service.
Leading BNPL player Klarna has also started offering a Pay Now service that bypasses the use of a debit or credit card. Instead, it offers consumers the chance to use their online banking details to make a purchase directly.
While Amazon is not the only online retailer experiencing troubles with rising transaction fees, it is certainly the loudest. As it explores alternative payment methods, it is unsurprising that other retailers are following suit.
With a growing acceptance of open banking from even the card issuers themselves, paying by card online may soon become just another option, rather than a necessity.
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