In the U.K., Amazon’s ban on Visa cards has been abandoned, but the ripple effects may last long and reach far.
To that end, some of the biggest retailers in the world — via the Merchants Payments Coalition — sent a letter to the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Wednesday (Jan. 19) urging those regulators to take a deeper look into credit card fees.
“We are writing to bring your attention to the recent decision — and subsequent reversal — by Amazon to stop accepting Visa credit cards in the United Kingdom because of the high fees charged to process transactions,” the letter stated. “Our coalition is deeply concerned by these excessively high fees, which drive up prices paid by the average family by hundreds of dollars a year, and we advocate for a more competitive and transparent card system that is fair to both merchants and consumers.”
Amazon reversed its position and emailed customers to announce that Amazon U.K. shoppers can still use their Visa cards. An agreement between Visa and Amazon is still in the works.
Even in the wake of Amazon’s decision to keep accepting Visa cards in the U.K., according to the coalition’s Wednesday letter, “Amazon’s move shows how frustrated even the largest retailers are over skyrocketing swipe fees, and the situation is even worse for small retailers… Lack of competition lets card networks like Visa and Mastercard and the banks that issue their cards get away with price fixing and other practices that would not be tolerated in any other industry.”
Differing Rates — and Dominance
The coalition stated that in the U.K., merchants are charged an average 0.55% of the transaction amount for purchases made with Visa credit cards, and those charges totaled $369 million in 2020. But U.S. fees are multiples higher, at 2.22% of transactions, and the charges came to more than $43 billion that same year.
“Visa’s market dominance is significantly stronger here than in the U.K.,” the letter stated. “Visa controls only 39% of the credit card market in the U.K., compared with 55% by transaction volume in the United States, while its closest rival, Mastercard, accounts for only 23% of the U.S. market. Together, the two account for nearly 80% of the U.S. credit card market…”
The letter stated banks follow the swipe fee rates set by the payment networks rather than setting fees in a competitive way (that would ostensibly lead to lower fees), and that practice, in the past, has been challenged as a violation of federal antitrust law.
With the letter now sent, the stage may indeed be set, the prompts in place, for the DOJ and the FTC to mull the interchange fees. After all, the two entities have said, jointly, that they would launch a review of merger guidelines (with public inquiry open until March of this year) in order to pinpoint “unlawful” consolidation. Of course, the Visa and Mastercard swipe fees are not part of any merger. But it seems to be the case that the regulators are also looking to revamp the ways in which they look at whether “alternative metrics or qualitative factors should also trigger presumptions of competitive harm.”
This last point hints that a new range of data points can (and maybe will) be used to assess market dominance (and not just dominance achieved through mergers). The retailers, as stated in the letter, are alleging that Visa’s and Mastercard’s card related practices are anticompetitive.
Part of the payments network defense — and issues that are not tied solely to fee structure or market share — will likely revolve around what those fees are used for.
In a column from mid-2021, Karen Webster noted that merchants’ pushback on those fees has come through litigation, legislation and surcharging. Merchants have said if they were charged less (or did not pay interchange at all), they could offer rewards and innovation to customers. But then again, they don’t have the scale or experience in building key attributes of payment networks that include fraud protections and seamless payment rails (which underpin consumer trust and commerce at large).
Get ready, then, for the next battle in the ongoing war over interchange.
See also: Overdrafts, Merchant Fees And Crypto