Updated January 20, 2022 – Amazon has taken a U-turn on its plans to ban Visa credit card payments in the UK, stating that it's currently working with Visa on a potential solution to allow UK shoppers to continue using their Visa credits cards at checkout.
Amazon announced last month that it will stop accepting payments from Visa credit cards issued in the UK beginning January 19, 2022 because of the high fees that Visa charges for processing credit card transactions on its marketplace.
Recent poll data reveals how much Amazon stands to lose in terms of revenue and what lasting effects the Visa ban will have on its ecommerce platform.
Why Amazon Is Banning Visa
The battle between these two giant global corporations is being fought over interchange fees, which are the charges imposed by Visa to a merchant’s bank for each transaction. Amazon cites the high transaction fees Visa charges on purchases made on the Amazon UK marketplace as the reason for the ban, purportedly in the interest of consumers (Visa stock fell shortly after Amazon sent the email announcement to its customers).
Previously, these fees levied by Visa and other credit card companies were capped at 0.3% by EU regulations, but since Brexit, Visa has been able to raise the fee to 1.5%.
Interestingly, the fee hikes are not unique to Visa. Mastercard increased its UK fees much earlier, but has not been banned by Amazon. This has led to some speculation that Amazon might be imposing the ban for more reasons underneath the surface, one of which could be the fact that Visa had increased its fees for ecommerce sites, while lowering the fees for certain other categories like real estate and education.
This could also be Amazon’s sly way of pushing other payment options onto its customers:
- A few weeks ago, Amazon announced plans to switch its co-brand credit card from Visa to the latter’s biggest competitor, MasterCard.
- In the US, it recently inked a deal with PayPal to accept Venmo payments starting 2022, which also potentially allows for cryptocurrency payments down the line.
- Much earlier, Amazon partnered with Affirm to host its new Buy Now Pay Later option.
Poll Data Suggests Amazon Could Lose Up to £1.4B
As reported by The Independent, a recent poll of 2,000 adults revealed that as many as 13% of Amazon’s UK customer base of 48 million (roughly 6.15 million customers) will opt to cut their purchases or stop buying on Amazon altogether after the Visa ban.
Amazon’s total revenue in the UK in 2020 amounted to £20.63 billion, and the potential losses of this huge segment of its UK revenue could total up to £1.356 billion. According to its latest figures, its net sales for Visa credit card transactions account for about £1.4B of its total revenue. This could be a huge hit for Amazon, as the UK is one of its biggest markets outside the United States. Some reports say that nearly 90% of UK shoppers are using Amazon, with 15 million of those subscribed to Amazon Prime.
The poll also revealed that one in three customers have “negative” sentiments against Amazon for blocking Visa payments starting 19 January 2022, and one in five are predicting Amazon UK transaction volume to plummet after the ban takes effect. On the other hand, almost half felt that Amazon was right in standing up to Visa over the excessive fees, despite being frustrated over the change.
What the Ban Means to Sellers
While the ban directly affects Amazon UK customers who use Visa credit cards to shop on the platform, chances are it will also affect the seller ecosystem one way or another. A good number of Amazon sellers use Visa credit cards to pay for things like advertising fees. Some sellers speculate that after Amazon restricts Visa credit card payments, there’s bound to be some account failures due to automatic deductions that could potentially affect sales. Having a non-Visa payment option is the best precaution sellers can take to avoid being affected by the ban in the near future.
Amazon’s January 2022 effectivity date for the ban is not set in stone. According to a Visa spokesperson, the credit card company will continue to talk with Amazon and work toward a resolution so that Visa credit card holders in the UK can continue to shop without the restrictions. It’s still possible for either Visa to lower its transaction fees or for Amazon to just eat up those costs and not lose revenue from Visa credit card users in the UK.
In any case, UK-issued Visa credit cards may still be used during the oncoming peak holiday shopping season. And, if the ban does take effect early next year, UK customers can opt to use Visa debit cards alongside Mastercard and other Amazon payment options.