And now the deadline looms, inching closer — potentially changing the landscape for card payments in the U.K.
Jan. 19 is a red letter day for Amazon, and for Visa, where, mid-week, Amazon U.K. will bar Visa cards from its site.
Any number of things can change over the next five days, of course. There may be a deal struck, where Amazon and Visa agree to carry on as before, and millions of shoppers will still be able to buy online from the eCommerce juggernaut’s platform. There may be some as-yet-to-be announced concessions in the works (surrounding interchange, we’d wager, as discussed below).
To be sure, this is not to say that online commerce will come to a screeching halt at the end of the week in the region. Consumers, after all, will still be able to use Visa debit cards, or other credit cards in order to hit that “buy” button.
But we note that there’s a bit of hassle and friction in doing so — just enough, perhaps — to turn at least some consumers off from completing their transactions. If consumers do not make the switch they may find, down the line, that Prime subscriptions, especially, are interrupted.
As has been reported, Amazon has been offering consumers a discount of 20 pounds to make the switch from the Visa cards, indicating that it’s willing to have some financial skin in the game, so to speak, and is willing to subsidize the switch.
Broadly speaking, Amazon wants consumers to switch away from using Visa credit cards in the U.K. due to what it has said are the high costs tied to the transactions.
We’re talking here, of course, about interchange fees, the fees that banks charge merchants to accept their credit cards, and where Visa gets paid a certain percentage of each transaction.
We noted in this space before that the interchange rate has indeed jumped.
Higher Interchange Rates in the UK
When Britain was in the European Union, Visa and other card networks had to abide by a cap of 30 basis points per transaction done with a credit card. In the U.K. that ceiling, post-Brexit, moves to 1.15%. Debit card caps remain 20 basis points, so for merchants and for Amazon, debit remains attractive.
Now, maybe the payments network giant and the eCommerce giant reach some middle ground and some agreement on interchange rates that falls in the middle of that aforementioned range.
The U.K. spat shines a bit of light on what might, should it be extended, equate to a “scorched earth” tactic for Amazon, market by market. Amazon emailed a statement to PYMNTS signaling that it would put a surcharge in place in Singapore for transactions that use the Visa card. That 50 basis point surcharge took effect in September. And as has been reported, Amazon is also mulling dropping Visa on the Amazon Prime Rewards credit card in the U.S. It may be the case that we see a “domino effect” across markets, where Amazon tests its might well beyond the confines of the U.K.
Amazon has said, vis a vis the U.K. dispute: “The cost of accepting card payments continues to be an obstacle to providing the best prices for customers. These costs should be going down over time with innovation and technological advancements, which allows merchants to reinvest savings into low prices and shopping enhancements for customers. Yet, despite these advancements, some cards’ cost of payments continue to stay high or even rise.”
For Amazon, the U.K. is roughly a $26 billion market, a bit less than 7% of the eCommerce firm’s total top line. Of course, at least some of that volume comes from credit.
It’s a remarkable strategy when merchants (and platforms) elect not to take payment methods that are obviously top of mind/wallet for consumers. But Amazon seems intent on taking the risk now, to perhaps a short-term hit on margins (if there are headwinds to volume as customers switch payment methods), betting that Visa will want to keep transaction volumes in place while sacrificing a bit of interchange.
We’ll see what happens, of course, as Jan. 19 comes and goes.
It may be the case that we see a “domino effect” across markets, where Amazon tests its might well beyond the confines of the U.K. But ultimately the power might rest in the hands of the consumer, forced to choose between Amazon’s marketplace or Visa’s cards, if the companies cannot come to some form of agreement on interchange.
For the Full Article –
Please Continue Reading Here: Looming Amazon UK Ban on Visa Credit Cards Threatens Domino Effect – PYMNTS.com
Quite useful tips and urls can be found on the full article.