Amazon has said that it no longer plans to ban UK customers from using Visa credit cards to make payments.
The world’s biggest online marketplace company was due to ban UK Visa credit card payments on 19 January due to what it believes are “high fees Visa charges for processing credit card transactions”.
But Amazon said that it has now dropped the plan and is “working closely with Visa on a potential solution that will enable customers to continue using their Visa credit cards on Amazon.co.uk”.
What’s behind the dispute?
Amazon first proposed the ban in November, pinning the blame on Visa’s fees. It also offered consumers a £20 Amazon voucher in exchange for switching their default payment choice away from a Visa credit card.
The move came after Britain’s exit from the European Union meant that cross-border “interchange” fees, which are charged by credit card providers on behalf of the banks that issue them, were no longer capped. As a result, providers raised these fees from 0.3% to 1.5% for credit card payments made across borders.
However, Amazon insisted that the interchange fees were not at the heart of its dispute with Visa, but rather were down to Visa’s fees over the long run, reports the FT.
Visa’s chief executive countered that the threatened ban was nothing more than a negotiating tactic. Amazon currently offers co-branded cards with Mastercard (which represented around 62% of the UK credit card market in 2020, versus a third for Visa) and American Express, but not with Visa.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the truce between both companies was good news and will help stem the threat of lost business for both parties, but warned that challenges remain ahead.
“Higher fees being charged by Visa remain a bugbear, and it’s likely that a long term solution will be involve some movement here, but it’s not in either companies’ interest for a war of attrition to re-start, with the prospect of significant losses in UK business for either side,” she said.
Streeter noted that consumers should be careful if they’ve already switched saved cards from a credit to debit card. A credit card, she says, can be useful for large purchases as they give some extra protection, but “if it tends to mean you run up larger credit card card debts, now could be a good time for a change”.
Moreover, it’s frustrating for consumers who’ve decided to apply for new cards. “Unfortunately, this kind of 11th hour change is no good to people who had been forced to apply for a new Mastercard credit card. If you’ve already applied, it will already show on your credit record. It’s hardly fair that consumers should pay the price for two massive corporations facing off against one another.”
As for investors – the Amazon ban has helped to highlight the threat that fintech and rival payment providers might pose to the likes of Visa. At the same time, the fact that one of the world’s most powerful retailers would still rather reach a compromise with one of the world’s most powerful payment processors suggests that there is life in the old card providers yet. MoneyWeek regular Stephen Connolly looked at one option to invest in last month.