The CEO of Visa described Amazon’s decision to ban UK-issued credit cards on its platform as “strange” and “unfortunate” but said he hoped the dispute could be resolved through negotiations.
“It is clear that we are in difficult negotiations,” Al Kelly told the Financial Times. “The difference here is that Amazon unfortunately decided to publicize the issues with the deal we had, and oddly chose to threaten to penalize consumers.”
a Amazon warned customers On Wednesday (17) Visa credit cards issued from the UK will not be accepted from next year, and it offered affected customers a £20 (£148) discount on their next purchase using an alternative payment method. The retailer also said it is considering ditching Visa as a partner on its co-branded card in the United States.
“This should not be taken as a shock, as Amazon used all available negotiation tactics to reduce the cost of processing payments,” independent analyst Kenneth Suchowski wrote in a note, saying that Amazon’s decision would have little impact on Visa’s financial results.
Amazon told UK customers so He was acting because of high rates Visa. However, Mastercard and Visa set nearly identical transaction fees in the UK, according to payments company Bambora.
“I find it very strange that they claimed to have done so because of the high cost of accepting these products in the UK,” Kelly said. “It’s not accurate at all.”
Visa and Mastercard have announced increases in interchange fees applicable to payments between the UK and the EU after the formalization of Brexit this year. For digital payments without a physical card, rates have been increased from 0.2% to 1.15% for debit transactions and from 0.3% to 1.5% for credit transactions.
A person familiar with Amazon’s position said the exchange fee is just one point of contention among many that include Visa. The person said rising costs were a concern before Brexit, and executives felt the payments provider was “not adding much value”.
Prior to Visa’s exchange fee increase in October, Amazon worked to limit its use in markets such as Singapore, where a 0.5% surcharge was introduced on Visa credit transactions this year, and in Australia. In both countries, coupons were offered to customers who switched to other payment methods.
Amazon does not consider it reasonable for Visa to charge an additional fee to protect against fraud in online sales, given the vast amount of data and knowledge about consumers. “Amazon is investing heavily to protect our customers from fraud and abuse,” an Amazon spokesperson said.
“However, Visa rates remain high, while merchants remain liable for fraud.”
The clash with Amazon is the latest problem for Visa, which faces increasing threats to its core payment routing business.
“This isn’t Visa’s happiest day,” said Dan Dolev, an analyst at Mizuho. They are under attack on many fronts.”
Visa and Mastercard have effectively monopolized global payments for decades, due to the popularity of cards as a payment method. However, competition from fintech companies and geopolitical pressures threaten to reduce their influence.
Amazon’s lawsuit against Visa is the latest example of merchants looking to lower exchange fees. They cite studies showing that the cost of processing transactions has fallen significantly, but the fees charged remain the same.
Payment networks and issuers have profit margins of 30% to 50%, while retail margins are around 3%, according to consultancy CMSPI.
Although card operators set a fee for the exchange, they state that they do not receive most of the money raised.
“At Visa, we have a responsibility to set prices in markets that are not regulated, and no one is ever happy,” Kelly said. “If the price goes down, and the financial institutions are not satisfied, the price goes up and the merchants are not satisfied.”
Merchants have been protesting transaction fees for decades, but they are gaining momentum in negotiations due to the proliferation of alternative payment methods.
Account-to-account payments, for example, operate on new payment methods – unlike traditional Visa and Mastercard card systems. It’s growing in popularity — it accounts for 13% of payments in Europe, according to a new Accenture report — and Visa and Mastercard offer their own account-to-account payment services.
Financial services companies such as PayPal are building their own payment systems that do not rely on existing networks. Last month, Citigroup launched a program that allows retailers to access the bank to request payments directly from consumers, bypassing the card system.
“New options are emerging every day, lowering exchange fees, making them more efficient for suppliers and better for consumers,” said Anthony Thompson, UK head of Zip, the Australian buy-now-pay-later company.
Many of these payments are made through application programming interfaces, or APIs, such as Plaid, which facilitate secure communications of consumers’ financial data to third parties.
“The future is clearly based on API-based communications, using bank accounts as a hub for routing, rather than credit cards,” said Keith Gross, director of international affairs at fintech Plaid.
Concerns about the future of the debt business prompted Visa to make a $5.3 billion ($29.7 billion) bid for Plaid last year, but the deal was dropped after the U.S. Department of Justice objected on antitrust grounds. Visa and Mastercard have also begun building their own API networks and investing in open banking technology.
Amazon is experimenting with alternative payment methods that avoid cards. In August, the company said it would offer a BNPL (buy now, pay later) facility to US consumers through third-party provider Affirm, allowing purchases of $50 or more to be paid in instalments.
A similar option was created in Germany using Barclaycard, while in Poland and the Netherlands the company worked with several companies to offer direct bank transfers for the purchase of goods.
In addition to the resistance of traders, there is also pressure on transaction fees from governments around the world.
The UK payment systems regulator said this month that it was looking into the issue of interchange fees and would “step in to resolve any issues we identify”.
The US Federal Reserve said it will review exchange regulations to address developments in payments technology, and analysts expect new rules to be published next year.
James Booth, head of partnerships at fintech group PPRO, said the duopoly also faces competition from domestic payment networks in China, India, Australia, Germany and Russia — which are being backed by governments to keep costs low and increase national security.
Meanwhile, efforts are underway to build the European Payments Initiative, which faces significant hurdles.
“There are many alternative payment methods, but due to the way the broader payments market is being defined, there are a number of conflicts that are causing new and existing alternatives to struggle to compete with cards,” said Alex Ellwood, Senior Vice President, CMSPI.
“Card payments feed many stakeholders with fee income.”
Translated by Luis Roberto M. Gonsalves
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