Amazon: Consumers Will Have Better Payment Options

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Amazon: Consumers Will Have Better Payment Options
Amazon: Consumers Will Have Better Payment Options

Amazon has made the bold move to ban Visa credit cards as a payment method for its UK customers by early 2022. 

 

The news was shared in an emailed statement to its UK customers who had a Visa credit card on file. Starting on January 19th 2022, Amazon would “unfortunately no longer accept Visa credit cards issued in the UK, due to the high fees Visa charges for processing credit card transactions”. However, Amazon made it clear that they would still accept other card companies and debit cards, including Visa’s. 

 

An Amazon spokesperson clarified that the move stemmed from “pretty egregious” price rises from Visa over recent years. In a statement, the online giant said charges ought to be “going down over time with technological advancements, but instead they continue to stay high or even rise.” In response, Visa stated that it was “very disappointed that Amazon is threatening to restrict consumer choice in the future. When consumer choice is limited, nobody wins.”

 

This latest development is simply the most recent in a longstanding disagreement over interchange fees, which card issuers charge to the merchant’s bank with every transaction. Amazon UK processes Visa’s interchange fees for UK-EU transactions. While credit card fees have previously been regulated at 0.3 per cent under EU rules

Earlier this year, Visa raised its cross-border transactions fees to 1.5 per cent. The British Retail Consortium, which lobbies on behalf of large retailers, reported that card sales fees for cross-border transactions between the UK and EU have risen by a staggering £150m this year, leaving British retailers to take on an additional £100,000 each day. 

 

The UK is one of the world’s biggest e-commerce markets and one of the most important payment markets for Visa in Europe. Visa is also the most dominant card brand in the UK, enabling over 80 per cent of purchases from UK-issued payment cards. Analysts also argue that Amazon’s move could be a play by the online retailer to promote their own Amazon Credit Card, which uses the MasterCard platform. 

 

The real significance of Amazon’s announcement is that it shows the increasing abundance of choices available with the UK’s Open Banking system. This Open Banking system enables all banks to securely connect with customers, technology providers and third parties and is a trend that is set to grow rapidly over coming years. In 2020, there were 24.7 million individuals worldwide using open banking services, while that figure is predicted to grow to 132.2 million by 2024. 

 

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This represents an average annual growth rate of almost 50 per cent. Driving these figures, more companies are investing in innovation in this space, and customers now have a broadening array of payment options at a much more cost-effective price than that offered by traditional payment methods including Visa. 

 

The increased power and plurality of alternative tools inevitably decreases the entrenched dominance of traditional payment methods. As a result, there will be more patterns like these unfolding in various corners of the globe. In Europe, the overall use of digital payments is predicted to grow by 70% between 2020 and 2025. In Asia, the proportion of consumer items purchased online has almost doubled in a very short period of time. 

 

With or without an event like Brexit, international businesses will take a page from Amazon’s playbook and find more cost-effective, secure and seamless payment methods to offer customers without the excess fees passed on from card companies. 

 

Amazon has the size and might to make dramatic moves like this recent announcement to decrease costs and increase revenue at checkout while promoting more modern and innovative payment methods. An example is Pay by Bank, which allows customers to make payments directly from their UK bank account. This decreases cost and fraud as well as increasing revenue through a higher customer conversion rate at checkout. 

 

At Banked : we are actively engaged with marketplaces, retailers, and financial services on how they can efficiently and securely bring methods like Pay by Bank to their customers. Retailers are indeed on the quest for alternatives to traditional card payments. 

 

When questioning whether other vendors will follow Amazon’s lead, the real issue is whether other merchants are dedicating as much resource as Amazon to searching for more innovative, cost-effective payment methods. 

 

After all, events like the pandemic have already permanently altered the payments landscape in every continent. All around the world, there is a unique chance for fintech companies to make a significant impact in the payments sector and step up to question the card monopoly whose fees have plagued so many businesses in previous years. 

 

While Brexit may have been the trigger, the underlying issue is that Visa was not forced to raise its prices. It made the choice to do so mid-contract. In the past, when merchants did not have as much choice at checkout as they presently do, this might have played out without much fanfare; however, as reliance on traditional card companies decreases, the entire playing field shifts.