Amazon Gets Aggressive Against Visa in the U.K., But It May Need Allies

In the latest battle of the titans over credit card interchange, Amazon.com Inc. may enjoy the advantage of size but could be pursuing a risky strategy unless other retailers line up with it, according to a long-time observer of transaction-pricing dustups.

The massive online merchant on Wednesday said it will stop accepting Visa cards issued in the United Kingdom effective Jan. 19 as a protest against Visa’s acceptance fees. The boycott does not apply to Visa debit cards or other credit cards and comes as the latest move by Amazon, nearly all of whose sales are online, to find a way to cap its acceptance costs. “What Amazon craves more than the result [of the Visa boycott] is control of their own costs,” says Steve Mott, principal at BettterBuyDesign, a payments consultancy. “They’re able to control all their costs except interchange.”

Merchants pay discount rates on credit card transactions set by acquiring banks that take into account network interchange as well as other costs. This credit card acceptance cost has long been a source of discontent among merchants, sometimes developing into litigation. One massive federal case against the major card networks has been in progress since 2005.

While “Amazon is by far the toughest merchant Visa has to deal with,” says Mott, he estimates the ultimate impact on the card company is likely to be smaller than Amazon might be reckoning on if it is not joined by other U.K. merchants. “None of this stuff is cataclysmic,” he says. “It’s not prescient of bigger things to come.”

Though Visa is the dominant issuer of debit cards in the U.K., it slightly trails rival Mastercard in share of the credit card market, according to payments consultant Eric Grover. He estimates Visa’s credit card share in the high 40% range of cards, compared to the low 50% range for Mastercard. “If Amazon were to say in the United States, ‘we’ll stop accepting credit cards,’ that would be huge, but this [U.K. move] is still surprisingly aggressive,” says Grover, principal at Intrepid Ventures.

The U.K. boycott also isn’t the first time the tactic has been deployed by a major merchant to protest acceptance costs. Walmart, a longtime critic of card costs, staged a shut-out of Visa in in some Canadian stores in 2016 before coming to terms with the network.

And Mastercard, too, has had to fight legal actions in the U.K. over interchange. In August, the Competition Appeal Tribunal in that country certified a $14-billion class action brought against Mastercard alleging interchange set by the network between 1992 and 2008 hurt consumers as merchants passed on the cost.

Another consideration in the current case, according to Grover, is that Amazon itself is a beneficiary of the credit card interchange system. It is an issuer, with JPMorgan Chase, of a cobranded credit card in the United States, on which it likely earns a share of revenue.

Amazon’s action in the U.K. comes as both Visa and Mastercard prepare to introduce significant rate changes in the U.S. market that were postponed last year in recognition of the pandemic’s impact on the operations of many merchants. The changes are expected to include both increases and, at least in some cases, lower rates. Amazon has also shown a willingness to accept widely used alternative payments, most recently PayPal Holdings Inc.’s Venmo wallet.