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The Real Reason Amazon is Dropping Visa

Something peculiar is unfolding between Amazon and Visa. It’s not unusual for merchants to drop schemes and networks, so the news that Amazon is considering shifting its US co-brand credit card from Visa to Mastercard, is not particularly alarming.

But adding that they banned the use of Visa cards in the UK, raised Visa credit charges in Australia, and that they are incentivizing their customers to use other payments methods, then one starts to wonder: 

What has Visa done to upset Amazon to this extent?

Keep in mind that Visa is the most dominant network in the global and UK card market.

Why did Amazon drop Visa?

Amazon cited Visa’s “outstandingly bad” credit card fees as the motive behind dropping the scheme. But Visa denied that, and if Visa’s claims about these fees having a minimal effect on prices are true, this battle might be a cover-up for another issue between Visa and Amazon, so let’s get right into the theories.

Theory #1: It’s All About Brexit 

The first theory is that the dispute was the result of an EU-enforced cap on fees no longer applying in the UK after Brexit. And when thinking about it, this theory is quite plausible.

In addition, it would make sense for Amazon to replace credit cards with debit cards given that lower fees apply.

That being said, an Amazon’s spokesperson denied this, stating that this rule applies to cross-border transactions between the EU and UK, whereas the dispute relates to domestic transactions. 

To refresh your memory, Mastercard and Visa planned a 5 fold increase in interchange fees between the UK and Europe at the start of this year, only to postpone these effects until April 2022 to help the recovering economy. But given that we are still stuck in the pandemic, will the schemes postpone the fees once again? 

Theory #2: A Negotiation Tactic

Another frequent theory is that this may be a negotiation tactic by Amazon. In the past, other big retailers have settled fee disputes with Visa after announcing they were going to quit accepting its credit cards. An example is the time where Walmart said it would stop accepting Visa credit cards after being unable to reach an agreement on fees. Consequently, seven months later the companies said they had settled the matter.

Theory #3 Promoting In House Payment Methods

The last theory is that this is all a move by Amazon to encourage customers to use alternative payment methods that are cost-effective, such as Amazon pay, Amazon’s own BNPL solution, or even Mastercard and Visa’s debit cards.

The Impact of Amazon Dropping Visa

Theories vary and speculation never ends, but at the end of the day, this is possibly the worst timing for Visa as shopping sprees are coming up, that being said, there is still time till 19 January for this change to be rolled out. And finally, you may have also noticed that Visa’s stocks slumped after this announcement. 

Do you think there is an underlying reason as to why Amazon is dropping Visa?

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