Amazon to ban Visa credit cards in the UK

Less than a couple of weeks ago, Amzon has given green light on Venmo (PayPal) payments acceptance for US shopper. Now, is banning Visa cards for UK shopper. Both the moves seems to me quite strictly correlated. Next step? ... open the doors to PayPal payments acceptance also in UK? ...

Card costs for merchants (not just Visa) have been increasing substantially over the last few years and (until now) merchants have been powerless to do anything about it. I'm pleased to see Amazon taking a stance on this as it just goes to show how big (and costly) the problem has become when even one of the largest merchants cannot negotiate against rising costs and has to ‘give notice’. These problems have been highlighted to the regulators both in the UK and the EU for quite some time. Sadly it's the end customers that are most impacted by their lack of willingness to address the problem and curb these rising fees once and for all.

So they are happy to benefit from all the innovation and the spend uptick that is enabled by the card schemes and yet unwilling to pay for it. Without online card payments, Amazon cannot exist and without adequate revenue, card schemes cannot exist. Mr. Bezos needs to be careful while flexing his muscles.

Increase in acquiring fee for UK shoppers for VISA card purchase is collateral damage of Brexit and more of business call whether VISA and Amazon like to create more inconvenience to VISA card holders and thus the issuers i.e. banks in UK issuing cards are getting affected.

Solution can be as simple as VISA and Amazon ask banks to issue co-branded VISA cards which will have low processing fee :)

The root of the problem here is not Amazon or Visa but BREXIT!!!!

@Carl Scheible.I think you’re mistaken about Brexit being the root of the problem here and to be honest it becomes a little tiresome hearing Brexit being quoted as the source of all the UK’s problems. 

All that Brexit did was create the opportunity for Visa (and Mastercard) to increase their fees for cross border transactions. They were not under any obligation to increase their fees but nevertheless decided to impose significant additional costs on merchants simply because they could. This at a time when merchants are struggling to survive following the Covid pandemic.

For affected merchants the card interchange fee for cross border credit cards increased from 0.3% to 1.50%, just like that! Kerrching!

…….and that’s just one small part of their apparent greed. Card Scheme fees is another growing problem. EuroCommerce, an EU retail trade association, estimates that increased costs for card acceptance is costing EU merchants over 100 million euros per month.

Chris Hemsley, the Managing Director of the UK’s Payments Regulator commented on it by saying in a speech on 5thOctober:

“Meanwhile, we have seen recent announcements of increases in certain card fees – focused on cross-border transactions – as previous regulatory constraints have been removed, as the UK left the European Union. 

However, the absence of specific regulatory caps is not itself sufficient reason to increase particular fees, particularly if these increases are not obviously linked to costs.

Such pricing behaviour poses real questions about how well this market is working, and not just in the context of cross border interchange fees.”

He carried on to say: “Our work on card acquiring has set out analysis that suggests that scheme fees paid to Mastercard and Visa approximately doubled between 2014 and 2018.”

Is it therefore any wonder that the likes of Amazon are saying enough is enough?

I like the timing - Jan 19th - into that post-Christmas, post high street sales dead zone to minimize impact.

But it will still be interesting to monitor levels of disruption... The power of consumers' habits and levels of inertia toward change should never be under-estimated.

Of course, if Amazon had a business registered in the UK and paying tax in the UK they would not be subject to the UK/EU interchange of 1.5% but would instead pay the domestic interchange of 0.3%.

Statista shows Amazon UK sales in 2020 were $26bn or about £20bn. Statista also estimates Visa has a 82% market share of UK card payments, so roughly £16bn of Amazon annual UK sales are paid using Visa debit and credit cards.

UK Finance stats show online card purchases run at about £23bn per month and that credit cards account for about 24% of this total.

Therefore roughly 24% x £16bn = £3.8bn of Amazon sales are paid each year using Visa credit cards. At 1.5% that would cost Amazon £58m per year, an increase of £46m over what it is currently paying.

Even so, Amazon is still accepting Visa debit cards which will cost it about £139m next year instead of £24m currently, a huge increase of £115m.

These extra costs will be borne ultimately by consumers, therefore it is self-evident why Amazon has made the decision to at least eliminate the additional credit card costs.

Let's hope Amazon embrace new innovations to move away from cards and their rent-seeking fee structures, to benefit the consumer in both their pocket and in the online experience.

An obvious measure for Amazon is to use open banking to mitigate the debit card costs. Also, with its partnership with Affirm, a launch of BNPL for Amazon UK busine must, erm.. on the cards. 

The key question for me is Amazon.co.uk a UK company? Probably not as based in Ireland to minimise UK tax. As UK has left EEA a transaction between a UK Visa cardholder and Amazon.co.uk is now a cross border transacton. Changes below and only for card not present transactions - online and telephone orders.

Debit Interchange 0.2% to 1.15%

Credit 0.3% to 1.50%

So Amazon save on tax but will pay higher interchange.

Of course interchange is only part of the equation as scheme fees have been rising as well. This is really a consequence of the merchant lobby taking the former associations to court on interchange and the banks not wanting the threat of the potential liability, so floated the schemes off as listed for profit organisations.

I'd also note the retailers reluctance to help finance the new European Payments Iniative designed to challenge the Visa / MasterCard dominance with lower cost processing. Maybe it's more cost effective for the big merchants to negotiate with Visa and MasterCard than try to build a new one competitor with non accetpance of UK Visa credit cards part of that strategy.

Lots of moving parts and will await the outcome with interest.

Bound to happen as Visa and MC find their match with behemoths like Amazon. 

On the other hand I won't be surprised to see Amazon trying to use this opportunity and  get foothold into payments business with its own Amazon pay offering. 

I was on a panel yesterday with the PSR and Pay.UK and this was a source of discussion. The increasing fee's for the usage of cards, and actually moving away from using cards in order to drive competition. They are very aware of this issue and are going to be tackling it, but I do agree that Brexit is a very good scapegoat in some instances for price hikes. Visa have made a couple of decisions recently that both increases costs to merchants but equally those providing new payment solutions on their rails. Perhaps this will force some further consideration by the scheme. 

I'm pleased to see Amazon stand up to Visa in the same way many merchants have chosen to stand up against the extortionate charges from Amex.

For Visa to say this move will "restrict consumer choice in the future" shows such a high level of arrogance; they have no real argument. All customers have choice and Amazon is a customer of Visa.

Both Mastercard and Visa have taken advantage of the UK's departure from the EU regarding interchange. Amazon takes advantage of the loopholes in the tax laws that exist from country to country. None of these companies are short of a bob or two however, here we are in the UK with record inflation, as the end result of all these manoeuvres is that the consumer pays.

The EU did the right thing to limit the interchange charges, the UK should do the same. At the same time, in this global economy, Amazon should be held to account regarding its taxes which would put something back into the countries that enable its business to flourish, rather than use these funds to enable jollies for the chosen few on ostentatious trips into space, also negating the good work done to reduce carbon emissions by its core business staff.

correction to the analysis in my post on 17 Nov 21

Visa is increasing interchange on UK card payments to EEA retailers, interchange to UK retailers remains the same.

Amazon's published revenue is different to the value of goods and services sold on its platform. Amazon sells to consumers and operates a marketplace for third parties to sell products and services to Amazon customers. There is no published figure but I estimate from Amazon's 2020 accounts that Amazon UK's gross merchandise volume is £26bn.

36% of UK ecommerce is cross-border (source IMRG) and assuming the EEA accounts for 60% then about £6bn of Amazon UK sales are from EEA retailers. Visa has 82% market share of UK card payments (Statista), so roughly £5bn of Amazon annual UK sales are paid using Visa debit and credit cards to EEA retailers.

UK Finance stats show that credit cards account for about 24% of online card payments.

Therefore roughly 24% x £5bn = £1.1bn of Amazon UK sales from the EEA are paid each year using Visa credit cards. At 1.5% that would cost Amazon £17m per year, an increase of £13m over what it is currently paying.

Even so, Amazon is still accepting Visa debit cards for EEA sales costing it about £41m next year instead of £7m currently, a huge increase of £34m. Overall, I estimate Amazon UK will pay £131m in card interchange next year, a 35% increase even with banning Visa credit cards. Also, remember that interchange is just one component of card fees, so the total bill will be higher still.