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Friday, November 19, 2021

Clash of titans Amazon and Visa

Amazon is taking on Visa over interchange fees. The ecommerce giant divulged on Nov. 17 that it will no longer accept Visa credit cards issued in the United Kingdom as of Jan. 19, 2022.

"The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers," an Amazon spokesperson said in a statement provided to The Green Sheet. "These costs should be going down over time with technological advancements, but instead they continue to stay high or even rise. With the rapidly changing payments landscape around the world, we will continue innovating on behalf of customers to add and promote faster, cheaper and more inclusive payment options to our stores across the globe."

In an email to UK customers, Amazon said the move just applies to Visa credit cards issued by financial institutions in the UK. "You can still use debit cards (including Visa debit cards) and non-Visa credit cards like Mastercard, Amex and Eurocard to make purchases," the email stated. "We know this may be inconvenient, and we're here to help you through this transition so you can continue enjoying Amazon's low prices and wide selection."

In September of this year, Amazon began surcharging Visa credit card transactions in Singapore and Australia, citing the high cost of acceptance.

The Green Sheet reached out to Visa for a comment on Amazon's actions, but as of press time, Visa had not responded. In several published reports, however, Visa is quoted as saying it is "very disappointed that Amazon is threatening to restrict consumer choice in the future." It also indicated that it was trying to resolve the situation, although it offered no specifics.

Luke Massie, CEO of VibePay, a UK platform for account-to-account payments, said Amazon's decision in the UK will have short-term negative impacts consumer choice, but over time will support A2A alternatives that bypass the card networks. "We will then see consumers have more choice than ever before," Massie said.

Amazon's move comes amid increased scrutiny of interchange rate setting. In the United States, the Merchants Payments Coalition called for a Federal Trade Commission investigation, arguing that interchange fees are contributing to increased gas prices. That request came after President Biden asked the FTC to investigate whether oil companies are engaging in illegal conduct that can be tied to higher gas prices.

"Card fees are up nearly 20 percent for gasoline retailers this year," said Doug Kantor, general counsel for the National Association of Convenience Stores and an MPC executive committee member.

Gas stations paid out $10.7 billion in interchange fees last year, according to NACS. Given the ongoing spike in prices at the pump, gas stations are on track to pay more than $12.5 billion in interchange in 2021, NACS said.

Back in September, NACS asked the FTC to investigate Visa and Mastercard policies that hamper routing of card-not-present (CNP) debit card payments through less expensive regional debit networks, like Shazam and NYCE.

Brexit connection

Amazon's decision to shun Visa credit cards issued in the UK follows a September statement from the UK's Payment Systems Regulator (PSR) regarding an investigation into interchange pricing. That move came in response to demands from the UK's leading retailing associations and several lawmakers. The British Retail Consortium estimated that retailers in the country paid over 1 billion British Pounds ($1.35 billion) last year in interchange.

In its statement, the PSR said "[T]here are real questions about how well the cards market is working." And, the statement continued, the PSR board agreed at a Nov. 17 meeting to "look into how well this market is working, including the issue of increasing card fees. If necessary, we will intervene to address any issues we identify."

In 2020, both Visa and Mastercard announced plans to increase interchange fees on transactions as a result of the UK's withdrawal from the European Union, commonly referred to as Brexit. EU regulations cap interchange fees at 0.2 percent for consumer debit cards and 0.3 percent for consumer credit cards.

Since Brexit, Visa and Mastercard each have raised interchange on CNP transactions between the EU and UK, which had previously been capped by the EU. The new Visa interchange rate for cross-border CNP transactions between the UK and EU is 1.5 percent; the fee for debit card payments rose to 1.15 percent.

The BRC claims European companies face an estimated $202 million increase in the cost of accepting cross-border payments as a result of the move, with British retailers, alone, expected to be on the hook for an additional $49 million in interchange fees.

The decision to hike interchange for some UK transactions came within months of Visa backing off planned interchange hikes in the United States amid outcries from retailers and lawmakers.

Leveraging retailing clout

Amazon isn't the first large retailer to shun Visa credit cards over interchange rates. Back in 2018, Kroger Co., the largest grocery chain in the United States, with 2,800 stores under various banner names in 35 states, stopped accepting Visa-branded cards at several hundred stores in seven western states until Visa agreed to reduce interchange. Kroger's ban on Visa cards was lifted about a year later, with neither company revealing details of any deal they may have struck.

Prior to that, in 2016, Walmart stopped accepting Visa credit cards at 19 store locations in Canada in a bid to lower its interchange costs. The two companies reached an agreement about six months later, although details were never revealed, and Walmart lifted its ban on Visa-branded credit cards.

Typically, the card brands negotiate special pricing with very large merchants, like Amazon and Walmart, that are well below published interchange rates. end of article

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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