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Spotlight: Amazon U-Turns on Visa Ban – The Industry Response

On 19 January,  Amazon’s plan to stop customers using Visa credit cards to make payments was due to come into force. However, at the last minute, the e-commerce giant changed its mind, announcing that the two companies were working together to reach an agreement. 

The ban was originally announced in November 2021 due to the ‘high fees’ Visa charges for processing credit card transactions.

In what is considered as a “game of corporate chicken”, the companies stepped down from the ring earlier this week, with Amazon releasing a statement to its customers.

“The expected change regarding the use of Visa credit cards on Amazon.co.uk will no longer take place on 19 January,” the statement read. “We are working closely with Visa on a potential solution that will enable customers to continue using their Visa credit cards on Amazon.co.uk.

“Should we make any changes related to Visa credit cards, we will give you advance notice. Until then, you can continue to use Visa credit cards, debit cards, Mastercard, American Express, and Eurocard as you do today. Thank you for being an Amazon customer.”

A victory for the consumer?

On the announcement, Alex Reddish, managing director, Tribe Payments said: “This is a very positive development – it’s important that consumers have a choice over how they pay, and to have a business as big as Amazon refuse to take Visa may have had unintended long-term effects over accepted forms of payments. Our hope is that any renegotiation over interchange fees benefits every business that accepts payments, not just behemoths like Amazon.” 

On the other hand, Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown, believes that while the truce between the companies will stem lost business, there is still confusion amongst consumers. 

She said: “A truce has been called in the game of brinksmanship between Amazon and Visa with the e-commerce giant appearing to relent and allow credit card customers to continue shopping on the site. The two sides have not completely backed down but last-ditch talks over the weekend appear to have been productive and certainly, Amazon is coming across as a lot more conciliatory in tone. Higher fees being charged by Visa remain a bugbear, and it’s likely that a long term solution will involve some movement here, but it’s not in either companies’ interest for a war of attrition to re-start, with the prospect of significant losses in UK business for either side.

“This is a niggling headache Visa will want to see lifted as it grapples with competition from start-ups and more established rivals. But it does still remain the world’s largest payments processor and is still positioned squarely in the centre of the global shift towards cashless payments. With the contactless trend only recently hitting the US in a big wave, there is still plenty of growth potential ahead.

“For consumers, if you’ve swapped your saved card on Amazon in expectation of the ban on Visa credit cards, it’s worth thinking carefully whether a credit card is the right option. If you make specific large purchases and want the extra protection it may well be worth switching back, but if it tends to mean you run up larger credit card debts, now could be a good time for a change. Unfortunately, this kind of 11th-hour change is no good for people who had been forced to apply for a new Mastercard credit card. If you’ve already applied, it will already show on your credit record. It’s hardly fair that consumers should pay the price for two massive corporations facing off against one another.’’

A bullet dodged for Visa?

What does this news mean for Visa? While the situation is still unfolding, the company is likely to be somewhat relieved. Had the ban gone ahead, Visa would have lost a large portion of revenue as customers would have been forced to use other cards. 

However, it could be a turning point for merchants, with high card fees being a point of contention in the industry for a long time and Amazon potentially opening the door for industry-wide change.

Iain McDougall, chief commercial officer at European open banking scale-up Yapily, said: “For Visa, a willingness to negotiate fee terms at Amazon’s demand sets a dangerous precedent for card schemes among e-commerce platforms: “If Amazon can negotiate card fees for its merchants, then why can’t we?”

 “In the eyes of the Visa credit card customer, it’s a short-term win. In the long term, it only stresses the importance of having alternative payment methods available to consumers so they are not left exposed again. 

“To win the loyalty of both e-commerce platforms and end-consumers, Visa needs to innovate quickly in order to survive in a world wherein card payments are not the only method for online transactions. 

“It is unsurprising that Amazon and Visa are still negotiating an agreement. Facing a significant decline in transaction volumes, I imagine Visa have been doing all they can to reverse the decision since it was made last November. That this has been announced — just two days ahead of the initial deadline — indicates that Visa has likely moved significantly from their proposed fee structure. However, it does leave a small door open, which will, at the very least, buy a number of Visa credit card customers more time to prepare — whether that be switching to a non-Visa card or an alternative payment method altogether.

Kevin Mountford, the co-founder of platform Raisin UK, added: “It comes as no surprise that this dispute has been resolved, even if just temporarily. In what has been a painful dispute both in public and in private, these two corporate market leaders seem to have recovered some of their relationship.

“Amazon, the biggest retailer and household brand in the world, will have been under immense pressure to overturn their drastic decision to not accept Visa credit cards. Amazon would have been damaged if they had followed through with their threat, with many customers not being able to use their preferred method of payment. But, many customers will have listened to Amazon and switched their payment method. The deal Amazon gave where customers could earn credit by just switching payment methods is still valid, permitting you use the promotional link in the email they sent you.

“Although Amazon and Visa have been silent on communications between the corporate powerhouses, we can infer that a deal is near. There was no new end date set so it seems Amazon may be wanting to put this dispute behind them.

“Ultimately, is the dispute just about fees? Probably not. Mastercard is not facing the same threat and in fact, this threat of not accepting Visa could have pushed some people to sign up to Amazon’s reward card, which is managed by Mastercard.”

On the merchant side, Karl MacGregor, Vyne’s co-founder and CEO, said: “Amazon’s recent decision to reverse its ban on Visa credit cards in the UK illustrates the moveable feast that is the current payments ecosystem. It is essentially impossible to maintain fair trading when consumers and merchants are dependent on a small number of payment giants, especially when current payment methods are inflexible, inconvenient, and time-consuming.

He continued: “Card fees have been a source of contention between providers and merchants for a long time, and the price hikes post-Brexit have exacerbated the problem. But not all merchants at the mercy of the card schemes have the same scale, power and influence as the internet giants of today. Many of these businesses already pay thousands of pounds per year, only to face mid-contract price increases. There are, however, alternatives for retailers to consider, such as account-to-account payments, which bypass traditional card schemes altogether to save consumers and retailers both money and time. Times and payment processes are changing, and those retailers at the forefront of the curve will be the ones to benefit most.

A non-starter?

Brad Goodall, CEO of the online payments firm Banked, believes the situation was a non-issue from the start. 

“Amazon is smarter than just playing chicken with Visa over fees,” he said. “They likely never intended to drop Visa at this stage but ran an experiment to test customer loyalty to the Amazon brand versus a payment brand.”

“There’s a couple of reasons to suspect this was an experiment on consumer behaviour. First, Amazon announced a ban on Visa credit card payments – which has a minority market share in the UK- instead of Mastercard – the most widely used credit card in the country- despite the fact that both payment providers have bumped up their processing fees. Amazon is always playing the long game and showed how far they are prepared to go to gather information to find ways to innovate and serve their vendors and consumers. The fact this also played into negotiations with Visa again is just part of the committed strategy.

“Second, Amazon also announced the ban during the Black Friday and Christmas shopping period – a time when there’s an increase in spending. Again, this would have been a perfect moment to conduct a controlled experiment on customer loyalty and consumers behaviour by gathering data on actions taken by prime customers especially.

“Amazon is one of the most consumer-centric companies in the world – and knowing what people want and how they want to pay for things is what keeps them at the forefront of payments innovation, customer retention and profitability. Think about all that data Amazon just captured when it announced the Visa… Who changed to a MasterCard/Amex? Who cancelled their Prime membership? Who applied for an Amazon card? Who did nothing? Who complained? All the sort of information you would want if you are building the super checkout for the future…”

David Jarvis, CEO & Co-founder, Griffin, added: “As new payment methods such as open banking enter the market and merchant costs dramatically decrease, Amazon has demonstrated that it is willing to test these boundaries by exerting power over traditional card schemes. Its back-and-forth, however, begs the question as to whether reports of the ‘death of cards’ are premature. Halting the blocking of Visa card payments speaks more widely of the ability for traditional card schemes to remain in the game, despite the rise of open banking and the emergence of new technologies to provide consumers with more payment method options.”

However, some believe that this situation should prompt new payment solutions altogether, with the context of the market providing ample opportunity for a refresh of payment solutions available. 

“Commerce, and in particular e-commerce, is borderless and driven by logistics, cost, transparency and business risk. Brexit, unfortunately, has had an adverse impact on the first three drivers, with less than predictable delivery times, import taxes, and the rising cost of payments,” said Bart Sprietsma, senior payments specialist, Mollie.

He continued: “This leads to both a reduced shopping experience for the consumer and direct merchant pushback on price, as made evident by the Visa/Amazon situation. This highlights the necessity for new solutions and technologies that benefit every retailer.”

Author

  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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