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As the African saying goes: when two elephants fight, it is the grass that is trampled on.
The two elephants in this case are Amazon and Visa. Weed is the UK consumer and UK retail sector suffering another painful lesson from the law of the jungle after leaving the EU. The brawl escalated on Wednesday when Amazon announced it would no longer accept Visa credit cards issued in the UK from January, blaming its “continued high cost of payments.”
The UK market, while Amazon is the third largest in the world, is unlikely to be the ultimate price. On the contrary, most analysts see it as a test of strength ahead of a fee renegotiation in the much larger US market next year. The stock market certainly saw it that way, betting on Amazon to emerge victorious and knocking down Visa shares by more than 5%.
“These fees [demanded by Visa] are expected to decrease over time with advancements in technology, but instead they continue to stay high or even increase, âa company statement said.
To prove its seriousness, Amazon is currently offering welcome bonuses of Â£ 40 to anyone who signs up for their branded credit card – backed, of course, by Visa’s smaller rival, Mastercard.
Visa, which controls 80% of the UK card market, has cried foul, saying it is “very disappointed that Amazon is threatening to restrict consumer choice.”
The mutual dependence between the two societies, however, suggests that the war will be temporary.
“The simple fact that American Express is still accepted [on the U.K. site] means it’s all part of a bigger fight for deal volumes and leverage, “said Andy Barratt of the consultancy firm Coalfire in Manchester.” But it’s kind of embarrassing that they’re ‘occupy it in public. “
Amex’s fees are well known to be the highest in the industry, while recent research roughly suggests that Visa’s fees are lower than those of Amex and Mastercard. Amazon declined to comment on this point.
A costly split
For some, Amazon is an unlikely consumer champion. He is embroiled in a major US lawsuit for rigging his market against wholesalers and third-party sellers, who have to pay up to 40% of the value of their merchandise to place it there.
In the EU, meanwhile, he is under a formal investigation for alleged similar abuses. A Reuters report last week, unconfirmed by both sides, said it was seeking to settle the charges and change its business practices to avoid heavy fines.
But Visa seems just as mistaken as a victim. Like Amazon, its size inclines it to monopolistic practices. In the UK, Visa and Mastercard accounted for 98% of card transactions in the past five years through 2018. Only the largest US retailers, such as Walmart and Kroger’s, have dared to publicly accept it in recent years.
A look at Visa’s finances is enlightening: After a 10-fold rally in its stock since 2013, it is the second-largest financial services company in the world with a market value of over $ 430 billion, ranked only behind JPMorgan. (Mastercard, worth $ 342 billion, is the fourth largest, just behind Bank of America.)
Despite operating what is essentially infrastructure, without the entrepreneurial and capital-intensive risk of lending and investing, Visa’s return on equity hovers around 30%, well above that of the economy it serves and that of its partner banks. . The smell of monopoly profits is strong.
“There must be urgent regulatory intervention,” said Mark Falcon, a former payments regulator who now owns London-based consultancy Zephyre.
It highlights Visa and Mastercard’s success in co-opting not only UK regulators – whose latest proposals to promote greater competition in the payments market have been looked down upon by the retail industry – but also startups. fintech payments that regulators hoped to break their duopoly.
Apple Pay, PayPal, and Revolut all use the same infrastructure provided by the two major card systems. Amazon clearly stands out here by hosting cardless payment systems at its national sites in Poland, the Netherlands and Italy.
The UK payment services regulator said on Wednesday it would now conduct a further review of how the market works and “step in to resolve any issues we identify.”
The PSR findings are also likely to highlight another way Brexit has made life more expensive for Britons.
Where there was no regulatory border between the UK and Luxembourg, interchange fees were capped at 0.2% for debit cards and 0.3% for credit cards, debit cards. far the lowest in the world, as one industry leader pointed out. The UK still applies this limit to domestic transactions, but as payments on the Amazon UK site are processed in Luxembourg, they are now considered ‘cross-border’ and therefore more risky, although the actual risks of the transactions are not. have not changed significantly.
Seizing this openness, Visa increased interchange fees on payments between the UK and the European Economic Area last month to 1.5% for credit cards and 1.15% for debit cards. The move sparked the dispute that led to Wednesday’s announcement.
“This is a classic example of how trade is more complex than just making something in one country and selling it to another,” said David Henig, UK director of the European Center for International Political Economy ( ECIPE), a think tank on trade. “Without the EU to arbitrate between multinationals, small countries become vulnerable.”
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