Millions of UK consumers are likely to be affected by Visa’s fee hike, which will see mega e-retailer Amazon ban Visa credit cards from January 19, 2022 as well as put pressure on small businesses’ profit margins, writes GlobalData. The leading data and analytics company notes that the pandemic has accelerated the UKs transition to a cashless society, with 58%* of consumers agreeing they prefer to use mobile or card payments over cash combined with explosive growth in online shopping.

George Henry, Consumer Analyst at GlobalData, comments: “Though Amazon officially says Britain’s decision to leave the EU has not impacted its decision-making, Brexit means the EU’s interchange fee cap no longer applies in the UK. As payments to and from the UK are no longer restricted by regional rates, and instead classified as interregional transactions, the EU’s fee cap of 0.3% on credit cards no longer applies to UK consumers.”

Major financial services companies have raised cross-border payment fees on some online or “card not present” transactions. In October 2021, Visa hiked its credit card interchange fees from the previous 0.3% to 1.5%, and debit card fees from 0.2% to 1.15%. The impact of fee changes has prompted the British Retail Consortium (BRC) to claim UK retailers are shouldering an extra £36.5 million in cross-border fees.

Henry continues: “Higher fees will result in the end-consumer paying more for their product to cover the extra charges now paid by the retailer. With UK inflation now at its highest level in a decade, extra payment fees could not have arrived at a worse time. Amazon’s attempts to look like a hostage to Visa’s rising fees are misplaced as the real victims are small UK businesses and consumers.”

Chris Dinga, Payments Analyst at GlobalData, further explains: “If the issue of interchange fees isn’t addressed, there will be ongoing issue for retailers, which will see their profit margins squeezed. Amazon is a dominant online retailer who is capable of banning Visa credit cards with minimal risk of losing customers as they are very dependent on Amazon. Smaller retailers may find it harder to do the same if they try to ban Visa credit cards.”

Online adoption has risen significantly since the pandemic. This is reflected in GlobalData’s Q3-2021 survey which reveals high online shopping preferences for both grocery and non-grocery products such as electricals or clothes**. The online space is also creating opportunities for alternative payment options.

Dinga adds: “Credit cards are still dominant players for non-cash transactions, but they need to be aware of the growing competition that buy now, pay later (BNPL) providers and alternative payments such as Venmo represent. BNPL is gradually being adopted by retailers as they see higher conversion and growth opportunity by providing it to their customers. High interchange fees could accelerate the adoption of BNPL services by retailers.”