This time it's different
..... Or when an apparently big move might herald a much bigger manoeuvre.
ICYMI … Amazon has announced it will stop accepting Visa credit cards in the UK in early 2022 citing the hefty costs to merchants. These so-called interchange fees were capped at 0.3% for credit cards and 0.2% for debit cards under EU regulation, but following Brexit Visa (and Mastercard) took the opportunity to put the fees back up to @1.5% for credit and 1.15% for debit.
Those of you that, like us, have been in payments for a couple of decades may have a sense of ‘deja-vu, all over again’. In 1996 US retailing giant Walmart sued Visa for $100 billion, because Visa had forced its merchants to ‘honor all cards’. If Walmart wanted to accept Visa credit cards (which it very much wanted to do as the credit feature led to more ‘luxury/impulse’ purchases than debit cards) it would also have to accept its debit cards – paying hefty interchange fees on what were in effect ‘cash’, not credit or impulse, purchases.
Comparing the cases gives an interesting perspective on how things have changed and yet stayed the same. Let’s start with what has stayed the same. The core business model of cards, fueled by interchange, is clearly alive and kicking and arguably a big contributor the lofty valuations of card companies like Visa and Mastercard (each worth around $400 billion), and card acquirers like Paypal, Adyen, Square, Stripe (all worth north of $100 billion). Not surprisingly, the charge is again led by a large retailer, and arguably Amazon is for the 2020’s what Walmart was for the 1990’s, as the world has moved from physical to online stores. (Big) merchants still rule.
But there are some interesting differences as well. Notably, Amazon has opted to drop credit rather than debit. The higher interchange on credit card purchases (compared to debit) may play a role in this – but then MasterCard’s fees are +- the same as Visa’s – so why drop one and not the other? Maybe it’s because Visa is a good test ground, having a smaller market share of the UK credit card market than Mastercard. Or maybe it’s because Amazon has partnered with NewDay to issue its own Mastercard credit cards, so banning Mastercard would be an own-goal. Or, maybe, it’s a signal of something bigger – namely Amazon getting deeper into payments.
Sure the retail behemouth already has Amazon Pay and Amazon credit cards and, having partnered with Barclays, allows UK buyers to pay (for some products) in instalments. But while providing credit to consumers is attractive and seeing (more) consumer payment data is handy, cards are really a tad last century. Whatever Amazon may be winning at the margins with its own-branded cards, it will still be paying a good whack in processing and interchange fees.
And this points to the biggest differences between this time and the last time. The rise of Fintech and alternatives, for both payment and credit are gamechangers. Just as Walmart bet its customers could use alternatives to debit cards, Amazon is no doubt betting that its customers have sufficient alternatives to (Visa credit) cards.
But – and this is a big but – unlike Walmart back in the day, the combination of instant account-to-account payments, open banking and BNPL gives Amazon a very strong hand in any bigger battle it decides to embark on with the card crew. And perhaps nowhere more so than in the UK where Amazon has a strong market presence, there is a speedy infrastructure for account-to-account payments in FPS and there is high adoption of novel forms of PoS credit. What will happen if and when Amazon decides their UK customers should have that alternative … how will it make them switch, and will their customers be any better off for having done so?
Stay tuned to see whether it will be a case of “plus ça change…” or “this time it’s different".