Amazon's U.K. Visa ban could foreshadow larger fight in U.S.

Amazon's plan to block Visa credit card payments in the U.K. is limited in scope but could be the start of a much larger battle between the e-commerce giant and the major card brands.

"This could be a tactical move that is about more than just the U.K. market," said Jordan McKee, principal analyst for digital payments at S&P Global Market Intelligence.

Citing the high costs of payments, Amazon on Thursday said it plans to halt acceptance of Visa credit cards in the U.K. starting Jan. 19. The move follows a Visa payment fee increase in the U.K. and comes ahead of Visa and Mastercard hikes planned for April 2022 in the U.S., a much larger market for Amazon.

Its U.K. move is a warning shot ahead of a U.S. showdown with Visa and Mastercard, according to payment experts.

"Amazon is posturing for negotiations in its single largest market in the U.S.," said Richard Crone, a payments consultant. "Amazon is more than a single large retailer; it is a marketplace that hosts payment services for millions of affiliate merchants." In a research note, Barclays also referred to Amazon's move as a "negotiation tactic."

Amazon's U.K. ban is limited to Visa credit cards issued in the U.K. Non-U.K.-issued Visa cards can still be used for Amazon purchases in the U.K., as can Mastercard and American Express credit cards, and Visa debit cards. That means Amazon's co-branded JPMorgan Chase credit card can still be used inside the U.K. after Jan. 18. JPMorgan said the Amazon U.K. ban would not impact the co-brand relationship with Visa.

Amazon's market in the U.K. is much smaller than its U.S. market. Amazon's 2020 U.S. sales totaled $263 billion, compared with $26 billion in the U.K. according to Statista. Amazon's share of the U.S. e-commerce market is 38%, while its share of the European e-commerce market — including the U.K. — is 10%, also according to Statista.

In October, Visa increased the fees for digital payments between European customers and British businesses, and vice versa, from 0.3% to 1.5% for credit cards and 0.2% to 1.15% for debit cards. Mastercard also raised fees, but only for online card payments between British customers and European merchants. Domestic U.K. payment fees remain capped at 0.3% and 0.2%, respectively. The European Union caps interchange fees at 0.3%.

The interchange hikes for cross-border U.K./EU payments has been attributed to Brexit, which creates a loophole not covered by EU or U.K. domestic regulations.

"With Brexit, Amazon can put a spotlight on the price increase in the U.K.," Crone said. That gives Amazon the ability to use payment fee increases as a way to communicate with its user base, who will have a payment option at least temporarily removed, he said.

The pending Visa and Mastercard U.S. interchange fee hikes, which have been delayed by the pandemic, would vary depending on the merchant. CMPSi, a research firm in Atlanta, told American Banker previously that the proposed increases would amount to $768 million for Visa and $383 million for Mastercard for the first year.

Bloomberg estimates that for a traditional Visa card, the fee on a $100 transaction would climb to $1.99 from $1.90. And for premium Visa cards, the fee would increase to $2.60 from $2.50. Bloomberg has also reported on a document Visa reportedly sent to banks that set higher rates for transactions on e-commerce sites, while retailers in certain services categories, such as real estate and education, would see fees decline.

Visa and Mastercard did not respond to requests for comment. In an email, an Amazon spokesperson said: "The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for consumers. The costs should be going down over time with technological advancements, but instead they continue to stay high or even rise."

Because of Amazon's scale, one of the negotiating levers it has at its disposal is to say it will stop accepting a particular payment method, McKee said. "This can be an effective tactic because of the massive volume consequences for the payment method provider. However, it's unfortunate when the customer becomes the victim in those negotiations."

Amazon's planned ban in the U.K. follows a similar move in Singapore. In September, Amazon, citing the cost of payments, added a 0.5% surcharge to Visa credit card purchases, a levy that Amazon says is still in place.

Other retailers have used similar tactics in the past. Walmart in 2016 banned Visa credit cards in Ontario and then threatened to ban Visa cards throughout Canada. Visa and Walmart later reached a deal about about six months, with neither side disclosing details.

Other large merchants will be watching the outcome of the Visa ban in the U.K. closely, McKee said. "Should Visa and Amazon reach an agreement prior to Jan. 19, it’s plausible other merchants will look to replicate Amazon’s brinkmanship strategy in effort to secure more favorable rates," McKee said.