The news that Amazon would stop accepting Visa credit cards in the UK had some observers sounding the death knell for the dominance of the Visa-Mastercard duopoly for consumer payments. While that might be an extreme view, Amazon’s move does signal a shift in the power dynamics for retailers and the future of payments.

Amazon’s move to stop accepting credit cards in the UK from 19th January 2022 has been met with questions of what this means for large retailers, and whether this is the beginning of the end for the major card networks.

Amazon cited the high fees Visa charges. Brexit was also blamed for the move, and commentators such as Tamara Cincik from the UK Trade and Business Commission saying that Brexit had increased costs for businesses: “If Amazon can’t make it work, with all their resources and ability to navigate legislation to avoid costs, then small businesses have no chance.”

The issue is also part of a long-running dispute between merchants and the card networks – and multiple lawsuits – about interchange fees, which are paid by the merchant’s bank to the cardholder’s issuing bank. And Amazon isn’t the first large corporation to take a stand. Back in 2014, Wal-Mart sued Visa over the alleged high ‘swipe fees’ – a suit that was finally settled in 2017.

Interchange rates vary according to the type of transaction such as in-person shopping, card-not-present (ie online or phone shopping), whether the card has a loyalty programme, and whether it is a cross-border transaction. Credit cards, card-not-present and cross-border transactions typically carry higher charges to cover the higher risks and consumer protection that are involved with these transactions.

The UK’s interchange fees changed once it left the European Economic Area (EEA). According to payment firm Bambora, Visa and MasterCard increased the interchange fee for cross-border, card-not-present transactions from 0.3% for consumer credit cards to 1.5% and the changes came into effect in October 2021.

The jump from 0.3% to 1.5% is significant, and particularly affects Amazon because it is an online retailer ie with card-not-present transactions. Also, notes Sarah Hall, Senior Fellow at the UK in a Changing Europe the transactions count as cross-border for Amazon because it is processing the transactions in Europe.

Law firm Osborne Clark notes that Amazon.co.uk is owned and maintained by Amazon Europe Core Sarl, a Luxembourg company, and other online retailers have established a separate UK entity to deal with their UK customers to avoid this jump in cross-border fees.

Given that Visa and Mastercard’s increases seem similar, why has Amazon targeted Visa for action? Industry observers have their own ideas. For instance, Chris Dinga, Payments Analyst at research firm GlobalData says, “Amazon’s decision to only ban one of these companies seems odd – until you remember that Mastercard is Amazon’s credit card issuing partner.”

This view was soon shot down by Amazon, with CityAM quoting a spokesperson as saying, “Visa is a service provider to Amazon, not a competitor and this action is entirely unrelated to our own payment offerings.”

Visa was vociferous in its response to Amazon’s action. The company’s CEO Al Kelly said in an interview with the Financial Times that the companies were still in discussions and “Amazon unfortunately decided to take the negotiation challenges public and oddly has chosen to threaten to punish consumers.”

The dispute comes at a time when consumers have more choice with their payments and are less reliant on the likes of Visa and MasterCard. Through open banking, for example, consumers can connect to the accounts of retailers and pay them directly. Also, the dominance of the credit card is being challenged by the rapid rise in buy now pay later schemes (BNPL), where retailers could be the ones extending credit – rather than card issuers. In this environment, there are more opportunities for retailers to have more control over payments and credit, or at least have more bargaining power with their partners. This doesn’t necessarily mean the death knell for the duopoly of Visa and Mastercard, but it does point to a shift in the payments landscape of the future.