In a bold move against payment stalwart Visa (NYSE: V), Amazon (NASDAQ: AMZN) has announced it will stop accepting UK-issued Visa credit cards from January as Visa's fees are simply too high.
Visa and MasterCard (NYSE: MA) have long been considered too big to fail with their broad reach and instantly recognized logos. Indeed, both have seen their share prices soar in recent years.
Visa stock is up 153% in the past five years, while MasterCard stock is up 242%.
Meanwhile, the PayPal (NASDAQ: PYPL) share price has risen 414% during this time, and Square (NYSE: SQ) is up 1,806%.
Amazon knocks 5% of Visa stock price
The Visa share price slipped 5% as news of Amazon's decision spread, but the shocking headline may not be as big a deal as first thought. While Amazon will stop accepting Visa credit cards from 19 January 2022, it will continue to accept Visa debit cards. There is also a chance it will change its mind if it can come to a suitable agreement with Visa in the meantime.
Visa responded with disappointment that Amazon is threatening to restrict consumer choice. While Amazon stated: "The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers."
In theory, as technology advances, costs associated with making payments online should reduce. But Amazon said: "instead they continue to stay high or even rise."
The four-year saga of Brexit may have finally ended at the beginning of the year, but its repercussions continue to be felt on a daily basis. While Amazon said this decision has nothing to do with Brexit, both Visa and MasterCard have since raised the interchange fee on cross-border transactions between businesses in the UK and the EU.
While this is currently a UK issue for Visa, Amazon has said it is also considering dropping Visa as a partner for its US co-branded credit card.
And this is not the only beef Amazon has going on with Visa. In Australia and Singapore, the e-commerce giant told its Visa credit card customers that they face a 0.5% fee for using Visa's credit cards on Amazon.
Moreover, this is not Visa's first battle of this kind. Both Walmart (NYSE: WMT) and Kroger (NYSE: KR), two large US retailers, stood up to Visa's high charges in recent years. Both cases ended in a private settlement.
Incentivized to switch from Visa
Although this public debate may blow over, the damage could already be done. Many consumers will have seen the headlines but not read the details. This could lead to the belief that Visa is no longer accepted at Amazon, whether or not the e-commerce giant changes its mind.
Furthermore, Amazon is incentivizing customers to switch by offering £20 for Prime customers to switch from using Visa to an alternative payment method and £10 for other customers.
Is this a win for fintech?
The potential for fintech to rise and disrupt the traditional payments sector has been a rumbling debate among bulls and bears for some time. But does Amazon's announcement mark a pivotal change in the lay of the land?
Maybe, maybe not.
BNPL is disrupting Visa and MasterCard's reach
Buy-now-pay-later (BNPL) is a payment trend that has exploded in the past eighteen months. This includes companies like AfterPay, Affirm and Klarna. It transpires that many younger shoppers don't trust credit cards and prefer to take control of their finances in a transparent manner.
While for some, BNPL seems like a disaster waiting to happen, for others, it presents a new way to shop that consumers love. BNPL often has zero or low-interest rates, unlike credit cards which charge a fortune. However, there are late payment fees and plenty of concern that consumers could quickly get into a situation they can no longer afford.
In any case, it's a wake-up call to the credit card proponents that they're not immune to disruption. And even Amazon has its own buy-now-pay-later option available in some countries.
Payment technology is undergoing a rapid transformation, and Visa and MasterCard both face threats from several quarters. Fintech firms offer consumers faster, cheaper services that better meet their needs. Then, there are the cryptocurrencies that may also eventually disrupt the sector.
Visa and MasterCard realize they have to keep up, and they've begun to diversify. MasterCard recently partnered with Bakkt Holdings (NYSE: BKKT), a crypto exchange, and they are both dipping their toe in BNPL.
Current market valuations:
Visa: $436bn
MasterCard: $352bn
PayPal: $242bn
Square: $106bn