Amazon’s short-lived threat to ban Visa credit cards in the U.K. may have been little more than a negotiating tactic to lower the fees the retailer pays, but many alternative payment providers still see it as an opening to convince merchants and consumers to use their products instead.
“Alternative payments have been around for a while. But these fee battles are a great opportunity to say ‘it doesn’t always have to be a card rail,'” said Neil Smith, head of strategic partnerships and business developments for Forter, a payment technology company based in London.
Just before the ban was set to go into effect, Amazon earlier this week said it would work with Visa on a potential solution to its fee and payment cost dispute. Amazon left the door open to future action, saying it would notify consumers if the situation changes.
The U.K. dispute comes ahead of potential card fee hikes in the U.S. this spring. Amazon’s threat carried weight because of the many firms that offer card alternatives, including Curve, Clik2pay and Affirm. And the Los Angeles Times this week reported Walmart, another major retailer that has sparred with Visa over fees, is working on a potential cryptocurrency.
“We’ve had a card-centric world for consumer to business payments,” said Mike Bradley, founder and CEO of Clik2pay, adding the fee disputes between large merchants and the card networks creates an environment in which payments that avoid card rails can find a more amenable audience.
“The card-centric world has worked well for the networks and the banks, but not as well for merchants,” Bradley said.
The Toronto-based Clik2pay, which processes real-time payments directly from consumer bank accounts to merchant accounts, on Tuesday introduced a developer portal that’s designed to make it easier to integrate Clik2pay’s products into retailer’s point of sale through an application programming interface. Clik2pay’s fees vary by merchant, but are generally half of card interchange fees, Bradley said.
“We’re beefing up our functionality and allowing merchants to go to market faster,” Bradley said. “As real-time payment systems make their way to market, there’s going to be more of an opportunity for consumers to directly pay merchants without cards.”
The London fintech Curve, which sells an all-in-one account for multiple cards, early this week said it had a “workaround” that would allow users to continue to use a locally banned credit card.
Curve’s consumers use a single PIN and card number to centralize spending from different accounts. That includes a connection to mobile wallets and a “back in time” feature allowing users to change which account was used after a purchase. Curve, which also plans a buy now/pay later product in the U.S., on Wednesday launched a redesign of its cards to demonstrate the new payment features that the company has added over the past year. Curve did not respond to requests for comment by deadline.
BNPL and payment technology firm Affirm on Tuesday announced a partnership with point-of-sale technology provider Verifone that will enable merchants to offer Affirm’s range of installment options, including biweekly and monthly payments, with an annual percentage rate starting at 0%. That follows a deal in 2021 to make the San Francisco-based Affirm Amazon’s preferred BNPL option.
Affirm would not directly address the Amazon/Visa fee dispute (Affirm also has a partnership with Visa). Affirm’s press office directed questions to an address CEO and founder Max Levchin gave in a Washington Post live broadcast in late 2021.
“When a consumer comes in and they drop their plastic, online or offline, there are a bunch of fees,” Levchin said on the broadcast. “The merchant basically says, ‘Well, I don’t really know what it is that I’m paying for.’ It’s sort of a single cut of every transaction that’s a toll bridge.”
Walmart, which temporarily banned Visa in parts of Canada over a fee dispute in 2016, has filed several new trademarks for virtual goods and nonfungible tokens. It is also hiring specialists in digital currency and crypto-related partnerships. While Walmart is a large and influential merchant, it would be challenged to offer its own currency — research from the Richmond Fed in June 2021 found that even the largest U.S. retailers would need more scale to offer their own currency.
“In order for wide acceptance, you need a network of merchants to offer the alternative, and we’re not there yet,” said Marco Salazar, director of payments for Javelin Strategy & Research in Chicago, who added the current interchange battles do provide an opportunity to advance alternatives to credit cards, including digital currencies, but these alternatives would not replace credit cards. Walmart, which several years ago was a primary driver of CurrentC, a failed effort to build a network of merchants to offer an alternative payment network, did not return a request for comment.
Alternatives such as BNPL, account-to-account transfers and even digital currencies aren’t totally free for merchants, but they often cost less than interchange. That opens capital for customer acquisition, another costly line item for merchants, Salazar said.
“It will not be a replacement anytime soon, but I do expect a shift from cards to alternative payment methods, if consumers will be ready to use those,” said Ron van Wezel, a senior analyst at Aite-Novarica in Amsterdam. “That will require some incentives for them to leave their cards in their wallet.”
As part of its fee battle with Visa, Amazon in the past year has added a surcharge for Visa credit card payments in Singapore, and later announced it would ban Visa credit card payments in the U.K. Both moves were viewed as negotiation tactics as Visa and Mastercard plan interchange fee hikes in the U.S.
In a Wednesday release, the Washington, D.C.-based Merchant Payments Coalition said Congress and regulators should “look closely” at Amazon’s announcement, saying fees in the U.S. are higher. Amazon, Mastercard and Visa did not return requests for comment.
“As bad as the situation is in the United Kingdom, the pain for merchants is far worse in the United States, which has the highest swipe fees in the industrialized world,” the trade group said in its release, adding the average swipe fee charged on Visa credit cards in the U.K. is 0.55% of the transaction amount, or nearly double the maximum 0.3% allowed under European Union rules before Brexit. The rate for online transactions between the U.K. and the EU rose to 1.5% in October, the group said.
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