After Amazon’s dramatic move to block Visa credit cards, businesses sound the alarm: Card fees are out of control
E-commerce giant Amazon confirmed to Morning Wire yesterday that it intends to stop accepting payments made using UK Visa credit cards from early next year.
The online retailer said that Visa credit cards issued in the UK will be blocked from use on its site from January 19.
The move sent shockwaves through Britain’s consumer and retail landscape, with business today calling for urgent action to support the payments system as card fees spiral out of control and bank branches are rapidly disappearing.
Amazon explained yesterday’s dramatic announcement due to “the high fees Visa charges for processing credit card transactions” and many businesses could not agree more: fees are way too high.
According to Mike Cherry, the chairman of Federation of Small Businesses (FSB), “the scheme fees charged by the handful of card providers which dominate the cashless payment space have soared in recent years.”
Cherry said the Payment Systems Regulator (PSR) “now needs to take urgent action, with banks upping cash deposit and withdrawal fees, and our bank branch network disappearing as card fees spiral, a lot of small firms are caught between a rock and a hard place when it comes to payments”.
The PSR, meanwhile, is closely monitoring the market and may introduce caps as it has the power to do so, according to Chris Hemsley, managing director of the regulator.
He said today: “We are closely monitoring this market and thinking about now taking that work forward so that we can identify what we can do.”
“We’ve announced further work to really investigate that properly so that we can think about what action we need to take, if and when we find significant problems in how competition is working.”
“We think there are questions about whether this market is working sufficiently well for retailers and for ultimately consumers.”
PSR managing director Chris Hemsley
He later said that the PSR has a range of powers, including taking steps to change how the market works. “Also it could include introducing either a temporary or more enduring cap on those fees.”
Hemsley said that would be a significant action, so it would take some time to build an evidence base.
“We’ve been in contact with Amazon and also the big card schemes and one thing I’d like to get across to your listeners is these are credit cards we’re talking about here, so if you have a Visa debit card… you can still use that card.”
A different payment ecosystem
The move from Amazon to ban UK issued Visa credit cards is less so a direct result of Brexit, as some analysts have suggested, and has more to do with the wider sentiment in the payments space, according to James Booth, VP Head of Partnerships EMEA at payment infrastructure company PPRO.
Booth told Morning Wire this afternoon that “card fees are high, businesses are struggling to keep up and are being forced to pass down the cost to the consumer.”
“The Amazon ban signals a move away from cards towards a more diversified payment ecosystem, that offers businesses and consumers greater choice and lower costs.”
James Booth, VP Head of Partnerships EMEA at PPRO
According to industry estimates, around 77 per cent of global online purchases are not made with an international credit card, but with a local payment method, be it wallets or bank transfers.
In the UK, more than half of all payments are card0based, with Visa having an 82 per cent market share of that, according to PPRO research.
“But this is changing rapidly as new payment methods are picking up pace,” Booth said.
“Offering a wider, global range of payment options is a good way for businesses to stand out from the competitive ecommerce landscape. But, even more importantly, it can lead to significant cost savings for these businesses,” he noted.
Visa, however, has said it is disappointed by the decision by Amazon, which – according to a company spokesperson – is “threatening to restrict consumer choice”.
Interestingly, analysis of Google search data revealed that online searches for Visa’s rival Mastercard shot up by 1,300 per cent yesterday in the UK.
Cardless society
Amazon’s move, paired with the high fees, could force consumers to look at alternative payment methods, according to Mario Klapsis, VP financial services and GM UK at Trustly.
“Amazon’s priority has always been customer experience, and payment is among the most important elements of that,” he told Morning Wire this afternoon.
Klapsis said: “Card legacy systems can be expensive, slow and cumbersome. I believe that e-commerce companies, and many companies in general, have much to gain by incentivising consumers to investigate newer, more convenient and often cheaper methods of payment,”
“This move by Amazon may be the first step of many towards a cardless society.”
Mario Klapsis of Trustly
‘Check your cards now’
James Andrews, senior personal finance analyst, said shoppers would be wise to “check your cards now.”
“Shops are entirely free to choose whichever payment method they want, but the news that Amazon plans to stop accepting Visa credit cards will come as a blow to the millions of Britons that have them,” Andrews pointed out.
Barclaycard and HSBC are among those using Visa on credit cards.
“With American Express also rejected by many UK retailers, that means people looking for rewards on their spending or trying to split the cost of shopping with a 0 per cent purchase card on Amazon will be effectively forced to choose a Mastercard,” Andrews continued.
He said hopefully Visa and Amazon will work out their differences but added: “in the meantime it would be wise to check your cards now”.