Amazon.com, Inc. (NASDAQ: AMZN) has decided to ban Visa (NYSE: V) credit cards issued by the UK from its platform. As a result, Visa’s CEO, Al Kelly, has called the move unfortunate and odd. However, he expects that the two companies will resolve their differences.
Kelly says that the action has been prompted by challenging negotiations between the two companies. Amid their discussions, Amazon decided to take the matter public and threaten the company by denying services to its consumers.
When Amazon announced that it would no longer accept Visa credit cards from the U.K in 2022, it also offered affected consumers £20 off their next purchase with a different credit card. The company has also hinted that it might drop Visa as its partner for their U.S co-branded cards.
Kenneth Suchocki, an analyst, says that the announcement is not surprising. He reports that Amazon has used any negotiations tactic it could think of to reduce processing payment costs. However, their refusal to work with Visa will have a minimal effect on Visa’s bottom line.
Amazon says Visa’s fees are too high
According to Amazon, it made the decision because of Visa’s high fees. However, Bambora, a payments firm, states that Mastercard Inc (NYSE: MA) has similar transaction fees; thus, this makes the explanation less plausible.
Following the formalization of Brexit in 2021, Mastercard and Visa have raised the interchange rates for payments between the E.U and the U.K. The fees for digital payments without a physic card went from 0.3% for credit transactions to 1.5%. Debit transactions went from 0.2% to 1.15%.
Amazon previously limited Visa card use in Australia and Singapore
An anonymous report says that these transaction costs were an issue for Amazon before Brexit, with the company feeling that Visa did not add a lot of value. Before the interchange increase, Amazon had already begun limiting card use in Australia and Singapore, where Visa introduced a 0.5% credit transaction. Amazon offered Vouchers to customers who Amazon’s decision affected.
Amazon says it makes little sense for Visa to charge fees to protect against fraud in online transactions as Amazon takes many measures to protect its customers from fraud. Moreover, merchants are fully responsible for fraud.