As the January 19th deadline loomed, inching closer — potentially changing the landscape for card payments in the U.K. —Amazon announced in a statement on Monday Jan. 17 that the change “will no longer take place.”
Amazon U.K. will not bar Visa cards from its site after all, CNBC reported.
“We are working closely with Visa on a potential solution that will enable customers to continue using their Visa credit cards on Amazon.co.uk,” an Amazon spokesperson told CNBC by email.
What changed, and why did Amazon seem so prepared to pull the trigger? Let’s review the context.
If the ban had gone into effect, online commerce would not have come to a screeching halt at the end of the week in the region. Consumers, after all, would have still been 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. Down the line Prime subscriptions may have been 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 had wanted 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, moved to 1.15%. Debit card caps remain 20 basis points, so for merchants and for Amazon, debit remains attractive.
Read also: Visa-Amazon UK Spat Puts Interchange Rates Back in the Spotlight
Now the payments network giant and the eCommerce giant have presumably reached, or believe they will reach, some middle ground and some agreement on interchange rates, the details of which are unknown at this time.
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. We were anticipating a possible “domino effect” across markets, where Amazon tests its might well beyond the confines of the U.K. Now, much remains to be seen.
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 seemed intent on taking the risk, to perhaps a short-term hit on margins (if there are headwinds to volume as customers switch payment methods), betting that Visa would want to keep transaction volumes in place while sacrificing a bit of interchange. Perhaps this wager has paid off.
We’ll see what terms of the agreement are eventually announced.
“Amazon customers can continue to use Visa cards on Amazon.co.uk after January 19 while we work closely together to reach an agreement,” a Visa spokesperson told CNBC by email.
The result of this reversal and the details of the agreement between Visa and Amazon will likely have ripple effects around the world. Stay tuned to this space for updates as the information becomes available.
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