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Amazon halts UK Visa credit card ban – was this a strategic power move?

Amazon u-turns as it announces this morning that the Visa credit card ban will not come into play this week. This comes as it previously announced it would no longer be taking UK-issued Visa credit cards in January.

 David Ritter, Financial Services Strategist at digital consultancy CI&T comments:

“That Amazon has halted its ban on UK-issued Visa credit cards comes as no surprise. Amazon is a retail giant so it has some leverage, but there’s no way it won’t accept Visa cards. Cards issued by Visa and Mastercard are ubiquitous and many of these cards also sit behind digital wallets like Apple Pay and PayPal. 

Plus, Amazon has automatic subscriptions tied to Visa cards – most importantly its Prime subscriptions – that consumers would have to change. At the end of the day, the consumer wants to use their preferred payment method and they won’t want Amazon to tell them it can’t be Visa. 

“It’s more likely that Amazon has been applying pressure tactics. Major players in the retail space tend to have bespoke rates with payment firms, rather than paying published rates. The move by Amazon is likely a way to negotiate a longer-term agreement on rates, or even to push for a freeze to its current rates. 

“We saw a similar situation in the U.S. between Visa and Kroger, a giant grocery store chain – but the two sides eventually settled.  

“Merchants, especially large ones, and the card networks, have a long history of squabble over fees and terms of use — settled by litigation in many countries. Card networks also face constant scrutiny from antitrust authorities around the world. Ultimately, however, while the card networks play a central role in consumer payments today, there are long-term threats to their role as intermediary – for example, payments on blockchain, whether cryptocurrency or not.”

Simon de Broise, financial services senior associate at law firm Collyer Bristow, comments:

“As a result of Brexit, Visa has been able to increase transaction fees on credit and debit card transactions made online between UK and EU sellers and purchasers.

Mastercard made similar changes in October 2021. Amazon’s move in November to seek to ban the use of Visa credit cards was seen by some as a stand against these increases – which affect smaller retailers in particular because they do not have the resources to easily mitigate against the rises.

It seemed unlikely that Amazon would make good on its threat, given the incredibly strong position that Visa holds in the market, but it may be that some sort of deal has been done in relation to the fee increases which will ease the pressure on retailers and mean that the extra costs will not be passed on to consumers.  However, details are still scarce and so it remains to be seen whether this is in fact the case.”

 

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