In a world of open banking, Amazon holds all the cards in the face off with Visa
From January 2022, Amazon will no longer accept Visa credit cards. This is a significant move in a landscape of ever-increasing competition for payments, a growing number of incentives for a move away from credit cards and the potential to bypass traditional payments altogether.
Whether or not it was a negotiation tactic to put Visa in a stranglehold, the decision demonstrates the abundant number of alternative options. Amazon wouldn’t do anything it thought would damage its own pre-eminence.
Five years ago, when credit card payments were omnipresent, even considering such a decision would have risked a significant dent to the online behemoth’s business model. Since then, the emergence of genuine choice means the Visa and Mastercard duopoly has begun to be challenged. Open Banking has allowed third party providers to move money directly from bank accounts to merchants. Digital banking apps such as Pockit have taken advantage of this to create new channels for payment. Amazon’s own “digital wallet”, Amazon Pay, accounted for 22 per cent of online payments in the US in 2020.
Amazon is uniquely placed to implement such a ban. The dominance of the online retailer gives it the power to bully other entities – even a payments giant with assets worth over US $80bn. Amazon has made the judgement that its consumers are so reliant on its service that they will cheerfully consent to a change in payment method. Given the 4.7 per cent drop in Visa’s share value seen on Wednesday, it seems to have been sound. Access to Amazon trumps loyalty to Visa.
Given consumers’ notorious reluctance to adopt new payment methods, the decision is not risk free. Amazon’s stated position is clear: Visa charges too much. They claim new tech should drive prices down “but instead they continue to stay high or even rise.” Brexit has removed the UK from the European Commission’s 0.3 per cent cap on credit card interchange fees, and Amazon, which charges UK customers from the EU, may be pre-empting Visa’s planned increase on such fees to 1.5 per cent. Attempts by Amazon to punish Visa for what it sees as excessive pricing fits into a broader global conflict, with the company having already placed surcharges on Visa credit transactions in Australia and Singapore.
Amazon’s dominance and the existence of alternative payment options gives them the power to ban Visa credit without a material loss of custom. Aside from trying to force Visa to lower their prices, the real motivation may lie in another development – Pay by Bank.
Pay by Bank uses Open Banking to transfer money directly to a merchant from a bank account, cutting out the need for a card. It is already offered by the major banks. Considering Amazon’s tendency for early adoption, it’s more surprising it has not already introduced this payment method. Expect to see it implemented soon, perhaps into Amazon Pay itself. Doing so would allow Amazon to cut out the middleman of payment cards altogether; a far greater challenge to Visa than the proposed credit card ban.
Pay by Bank is the missing piece from the Amazon vs. Visa puzzle. Both entities are aware technology will soon remove the need for payment cards – and Amazon may well be using this knowledge to bully Visa now. Visa could cool the flames in the short term by reducing their fees, but long term the die is cast, and it does not look sunny for payment card providers.