The battle between Amazon and Visa has begun in earnest.
With Amazon vowing to stop accepting payments on UK-issued Visa cards beginning on January 19, the two Goliaths are locked in a thorny war that this week has analysts scratching their heads over just what’s going on and how it will turn out.
Raise the Rate
Pre-Brexit, Visa and other card networks had their fees capped at .3% percent of a transaction’s price. Post-Brexit, that fee cap was lifted to 1.15%, which both Visa and competitor Mastercard quickly took advantage of.
Amazon is claiming it dropped Visa in the UK because of the rise in fees, but that doesn’t explain why it is giving Mastercard a pass:
- By blocking out Visa, Amazon could move to promote its own Mastercard-backed cards, including its Amazon Classic Mastercard and Amazon Platinum Mastercard.
- Amazon also has its own Visa-backed cards, and it could use the move to negotiate a better deal with Visa or drop it as a partner altogether.
The war between the two behemoths started on the Asia-Pacific front. Even before Visa raised its fees earlier this year, Amazon limited transactions processed with Visa in Singapore and Australia. In both countries, the e-commerce giant offered credits to customers who used an alternative payment method.
Charge! The bout with Amazon is the latest blow in an increasingly challenging environment for Visa. Both Visa and Mastercard maintain an effective duopoly on the businesses of routing payments, but competition from fintech startups continues to mount. “These are not the most happy days for Visa,” said Mizuho analyst Dan Dolev. “They’re getting attacked on multiple fronts.”
Big Deal? Not everyone is worried the war will hurt Visa. Analyst Kenneth Suchoski predicted that Amazon’s move would have “little impact” on Visa’s bottom line.