When we use Amazon to make purchases, most of us don’t even consider the fees that go along with using a credit or debit card. Payment options have grown in recent years rather than shrunk, and we’re used to a huge level of flexibility for how we complete our transactions. That could be about to change for users in the UK.
Amazon has announced their online marketplace will no longer accept Visa Inc. credit cards that are issued in the UK. The processing fees have been deemed too high for the retail giant, and changes will come into effect in January 2022.
Reducing the number of payment options for users is not a decision that Amazon’s representatives will have taken lightly.
At face value, consumers might assume that Amazon should have swallowed these increases rather than passing on the problem to the consumer, but once you actually start to look into the changes in the industry, you can see how Amazon feels justified to make these changes.
As the UK left the EU, caps were removed on the fees charged on transactions in the European Economic Area. This meant that card issuers had license to go ahead and change their fees. The National newspaper in Scotland claimed that the fees increased by around 500% in some scenarios.
“Card payments accounted for over four-fifths of U.K. retail spending in 2020, with just two firms facilitating 98% of these payments,” said Andrew Cregan, a representative of the British Retail Consortium. “Ultimately, it will be consumers who suffer higher prices unless these spiraling costs can be brought to heel.”
Amazon’s profit margins on items are often incredibly thin. With marketplace items also meaning that the profit is also split between the marketplace seller and Amazon. The growth of third-party sellers shows no signs of easing up, either:
With this in mind, it is easy to see why Amazon has revolted against these changes. Amazon turns over roughly 26 billion dollars a year in the UK, and even tiny changes to Visa processing fees could make millions of dollars worth of difference.
Brexit has added $200m per year to retailers’ card processing costs. Amazon, the biggest ecommerce seller in the UK, will account for a huge share of this. Amazon’s ability to offer low-priced items with next day delivery would surely be impacted by the additional fees.
An Amazon statement hit out at the decisions of Visa: “the cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers.”
Consumers in Britain have already suffered in the face of Brexit. GDP is likely to fall further before things get better, and recent issues have included supermarket and labor shortages.
Bloomberg’s analysis of the impact of Brexit is damning.
But as it stands, the UK consumer has avoided a surcharge on their Amazon purchases, instead, being simply blocked from using a Visa Credit Card.
In some countries, including Singapore, a surcharge has already been imposed on those who want to use a Visa Credit card.
Amazon is actually incentivizing users to move away from Visa credit. For UK buyers whose current default payment is Visa credit, switching to another method, including Mastercard or Amex, will see them rewarded with a £10 gift card, increased to £20 if you are an Amazon Prime member.
After Amazon made the announcement that “we will no longer accept Visa credit cards issued in the U.K.” it was Visa shareholders left concerned by a big slump. The shares dropped 5.2% in New York, and hit a 6.6% drop overall for 2021.
Put into the context of the Information Technology Index actually experiencing an increase of almost 30% over the course of the year, you can see that this is a huge underperformance.
Visa issued a statement in response to the Amazon decision: “We are very disappointed that Amazon is threatening to restrict consumer choice in the future. When consumer choice is limited, nobody wins. We have a long-standing relationship with Amazon, and we continue to work toward a resolution.”
It doesn’t seem like any resolution is forthcoming, with Amazon instead looking to force their customers to use other methods.
In practical terms, using another method of payment shouldn’t cause an issue for consumers. The vast majority of UK banks issue a Visa Debit card with every new bank account. So what impact will the lack of Visa Credit option make?
Customers who are using short-term borrowing to make their purchases and putting items on credit may not have as many options. It certainly doesn’t seem like Amazon is concerned about this impacting their bottom line.
Both Visa and Mastercard have planned to hike prices paid by US merchants, but delayed their alterations until April 2022 due to the global pandemic. Bloomberg has reported that Visa’s changes may see rates alter depending on who the merchant is and how the consumer wishes to make the payment. This extra variation could lead to some costs that ultimately get passed onto the consumer. However, after seeing how the UK changes led to a stock market backlash, Visa and Mastercard may be reluctant to push through big additional costs for retailers.
Amazon’s fightback has shown that the brand isn’t scared to lead their customers down a certain route when it comes to payment, and won’t be at the mercy of card companies hiking their prices.
Instead, it seems that the power of Amazon has grown so much that it pays for Visa and Mastercard to be on board, rather than risking the backlash of Amazon promoting other payment methods.
Rising credit card fees have been labeled disproportionate, and technology should certainly be making it easier to process transactions rather than more difficult. This warning shot could prove to be vital in keeping the costs to sellers down in a post-Brexit landscape in the United Kingdom.