Visa’s chief executive called Amazon’s decision to ban UK-issued credit cards on its platform as “weird” and “unfortunate”, but he said he hopes to resolve the dispute through negotiations.
“Obviously, we are in a challenging negotiation,” Al Kelly told the Financial Times. “The difference here is that, unfortunately, Amazon decided to accept our open negotiation challenge and strangely chose to threaten to punish consumers.”
Amazon notified customers on Wednesday that it will stop accepting Visa credit card issued in the UK Starting next year, and using alternative payment methods to provide affected customers with a discount of 20 pounds for the next purchase. The retailer also stated that it is considering abandoning Visa as its co-branded card partner in the United States.
“This should not be taken as a shock, because Amazon has been using all available negotiation strategies to reduce the cost of processing payments,” Autonomous analyst Kenneth Sukoski wrote in a report. The profit has almost no impact.
Amazon told British customers that it took the action because of Visa’s high fees. However, according to payment company Bambora, the transaction fees set by MasterCard and Visa in the UK are almost the same.
“I find it weird that they claim that they did it because of the high cost of accepting them in the UK,” Kelly said. “This is totally inaccurate.”
After Brexit officially took effect this year, Visa and Mastercard announced an increase in the exchange rate applicable to payments between the United Kingdom and the European Union. For digital payments without physical cards, the fees for debit transactions increased from 0.2% and 0.3% to 1.15% and 1.5% for credit card transactions, respectively.
A person familiar with Amazon’s position said that the exchange fee is just one of the crux of several issues involving Visa. The person said that before Brexit, rising costs were a problem, and executives believed that payment providers “had not added much value”.
Before Visa increased the exchange fee in October, Amazon has taken action to restrict its use in markets such as Singapore and Australia. Singapore levied a 0.5% surcharge on Visa credit transactions this year. In both countries, vouchers are provided to customers who switch to different payment methods.
Given that the retailer has a large amount of data and insight into consumers, Amazon believes that Visa’s additional fees to prevent online sales fraud is unreasonable. “Amazon invests heavily to protect our customers from fraud and abuse,” a spokesperson said. “However, Visa’s pricing is still high, and merchants are still responsible for fraud.”
The showdown with Amazon is the latest issue facing Visa, as its core business of routing and payment is facing increasing threats.
Mizuho analyst Dan Dolev said: “This is not the happiest day for Visa.” “They are under attack from multiple fronts.”
Visa and Mastercard are already valid Duopoly Due to the popularity of cards as a payment method, payments have been made globally for decades. However, fintech competition and geopolitical pressure may weaken its influence.
Amazon’s opposition to Visa is just the latest example of merchants seeking to lower their interchange fees. The research they cited showed that the cost of processing transactions dropped sharply, but the fees they charged remained the same. According to the consulting firm CMSPI, the profit margin of payment networks and issuers is 30% to 50%, while the retail profit margin is about 3%.
Although the card companies set exchange fees, they pointed out that they did not receive most of the money collected. “At Visa, we have a responsibility to set prices in an unregulated market, and no one is satisfied with us,” Kelly said. “If prices fall, financial institutions are unhappy, and merchants are unhappy when prices rise.”
Merchants have been opposed to transaction fees for decades, but due to the proliferation of alternative payment methods, they have gained influence in the negotiations.
Account-to-account payment-through Venmo or its bank-owned competitor Zelle-largely circumvents Visa and Mastercard payment methods and is becoming more and more popular. According to a new report from Accenture, these payments account for 13% of European checkouts.
Financial services companies such as PayPal have been building their own payment systems without relying on existing networks. Last month, Citigroup launched a program that allows retailers to bypass the bank card system and request payment directly from consumers through the bank.
“Every day, new options emerge to reduce exchange fees, making suppliers more efficient and better for consumers,” said Anthony Thomson, UK chairman of Zip, an Australian “buy first, pay later” company.
Many of these payments are implemented through application programming interfaces or APIs (such as Plaid), which facilitate the secure connection of third-party consumer financial data.
“Obviously, the future is API-based connections, using bank accounts as routing centers instead of credit cards,” said Keith Grose, international head of Fintech Plaid.
Concerns about the future of its debit business led Visa to buy Plaid for $5.3 billion last year, but the deal was cancelled after the US Department of Justice objected to it on antitrust grounds. Visa and Mastercard have also begun to build their own API networks and invest in open banking technology.
Amazon has been trying alternative payment methods to bypass the card. In August, the company stated that it would provide BNPL facilities to US shoppers through a third-party supplier Affirm, allowing purchases of $50 or more of goods to be paid in installments.
Barclaycard has set up a similar option in Germany, while in Poland and the Netherlands, the company has partnered with several companies to provide direct bank transfers to pay for goods.
In addition to the resistance of merchants, governments around the world are also facing the pressure of transaction fees.
The UK payment system regulator said this month that it is studying the issue of interchange fees and will “intervene to resolve any problems we find.”
The Federal Reserve Board of the United States has stated that it will review the exchange rules to address the development of payment technology, and analysts expect new rules to be issued next year.
James Booth, director of partnerships at the fintech group PPRO, said the duopoly also faces competition from domestic payment networks in China, India, Australia, Germany and Russia-the government is supporting these networks to reduce costs And promote national security.
At the same time, efforts are being made to establish a European payment initiative, which faces Major obstacles.
Alex Ellwood, senior vice president of CMSPI, said: “There are many alternative payment methods, but due to the establishment of a wider payment market, there are many conflicts, which means that new and existing alternatives are difficult to compete with bank cards.” Card payments provide fee income for many stakeholders.”