Online shopping giant Amazon sent shockwaves through the British payments community on Wednesday November 17 by announcing that Visa credit card payments will not be accepted by its platform after Wednesday January 19.

Amazon cutting off Visa payments is only the beginning of a payments industry overhaul, experts predict. Others point out that the ban wouldn’t have happened if it wasn’t for Brexit.

The ecommerce giant claimed the move was “due to the high fees Visa charges for processing credit card transactions,” as noted by CNBC.

Earlier in 2021, Visa hiked the interchange fees charged to merchants for transactions between the UK and the European Union. It was able raise the prices because of Brexit. Britain’s divorce from the trading bloc meant the EU’s cap on interchange fees no longer applied in the UK, so that payment providers were able to raise their fees. Amazon’s European headquarters is in Luxembourg.

While both Visa and Mastercard have raised their UK-EU interchange fees, Amazon has so far only said it would cut off Visa credit cards from being used to pay in the UK. Visa’s debit cards will still be accepted on Amazon UK.

Visa said it was “very disappointed that Amazon is threatening to restrict consumer choice in the future” and that it would “continue to work toward a solution”.

Amazon delivers huge blow to Visa

“This is a huge blow for Visa in the UK – they stand to lose out on many transactions to competitors,” Maria Palmieri, head of public policy at open-banking startup Yapily, tells Verdict.

Chris Dinga, payment analyst at GlobalData, agrees Visa is set to lose out unless it can reach a solution with Amazon.

“Being the second largest credit card provider in the UK, this ban is likely to represent a significant loss for Visa in the country,” he tells Verdict. “Amazon is in a unique position as it is a dominant online retailer who may be the only one who can make this decision.”

Dinga is unsurprised by Amazon’s decision, saying that the ecommerce giant has “been complaining about the interchange fees charged on credit card transactions”, but that other factors could also play into the decision.

“This ban could be a strategy for Amazon to boost the adoption of its own credit card which is provided by Mastercard,” Dinga adds.

Dinga argues Amazon capping Visa credit card services could also be a sign that it might go deeper into the highly lucrative buy-now-pay-later (BNPL) industry. The sector is expected to keep growing to be worth $166bn by 2023, according to GlobalData’s thematic research.

“Amazon recently announced its partnership with BNPL provider Affirm,” says Dinga. “Following this ban, we could expect to see Amazon introduce a new BNPL service on its platform as an alternative to credit card payments.”

Whatever Amazon’s reason for cutting off Visa credit payments from its UK platform, the company should be cautious about restricting itself to lashing out against just one payment processing provider. If it doesn’t, it could risk “being accused of anti-competitive behaviour by allowing Mastercard and American Express,” Dinga suggests.

“Mastercard’s interchange fees are the same as Visa while American Express’ fees are higher,” he adds.

The ban also raises the question of whether others would follow in the footsteps of Amazon and ban Visa and other payment processing providers.

“It’s unlikely as they don’t have the same influence as Amazon,” Dinga says. “It would only work if they all did it together as a united front. Amazon can be considered to have a monopoly of the online market and customers who rely on it would find it difficult to take there business elsewhere if they wanted. This is not the case for other online retailers: if they follow Amazon’s ban they are likely to lose customers.”

The Brexit factor and the fintech renaissance

Not everyone agrees that Amazon will be the only big company to take action against Visa and other payment providers. Fintech stakeholders have been quick to suggest the ban is the preamble to a complete overhaul of the traditional payments industry.

“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,” Siamac Rezaiezadeh, director of product marketing at payments provider GoCardless, tells Verdict.

“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.”

According to Karl MacGregor, co-founder and CEO of open-banking startup Vyne, it’s about time the industry faced an overhaul as “existing payments are broken and stacked against the merchants that rely on them” and adds that he believes more companies will soon follow in Amazon’s footsteps.

“Fuelled by post-Brexit price hikes this will be the first of many big business clashes with a payments giant,” MacGregor tells Verdict. “But online retailers should be reminded that there are other options out there and accelerate their efforts to offer new methods, such as account-to-account payments, that bypass the traditional card schemes altogether, saving money and time for both the merchant and consumer.”

There’s also the question of whether Brexit will cause more problems for British businesses.

“Yes, it is likely to keep happening due to a lack of regulations covering transactions between UK and EU members,” Dinga says. “In order for this issue to be resolved both the UK and the EU need to agree on new trade agreements.”

Not everyone is convinced that Amazon will go through with its threat to ban Visa, given the ubiquity of its cards in the UK.

“I expect there will be a compromise between Amazon and Visa before January 19,” David Ritter, financial services strategist at tech company CI&T, tells Verdict. “Amazon is a retail giant so it has some leverage, but there’s no way they won’t accept Visa cards.”

“It’s more likely that Amazon is applying pressure tactics,” Ritter adds. “Major players in the retail space tend to have bespoke rates with payment firms, rather than paying published rates. The move by Amazon is likely a way to negotiate a longer-term agreement on rates, or even to push for a freeze to its current rates. We saw a similar situation in the US between Visa and Kroger, a giant grocery store chain – but the two sides eventually settled.”

UPDATE

On January 17, two days before the ban was supposed to be enforced, Amazon announced that it would not stop accepting Visa credit cards. Instead, the two companies were working on a way to resolve the dispute.

However, the online retailer said that while the conflict hadn’t been fully resolved, it would give customer advance notice should it “make any changes related to Visa credit cards”.