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IT’S rare you see two industry titans having it out in public. But Amazon’s announcement that it will stop accepting Visa credit cards in the UK from 19 January has set the stage for a whole new corporate soap opera.
Amazon claims it’s protesting the high fees Visa charges on its credit card transactions, stoking some already-sizzling flames. Last October, the British Retail Consortium accused Visa and Mastercard of overcharging and warned that businesses would have to pass on additional costs onto consumers. Since Brexit and the removal of EU-imposed caps, both companies have been free to increase the “interchange” fees they charge businesses accepting card payments.
Visa argues its fees are competitive, and that removing customer choice benefits no one. People who use their credit cards - which includes Barclaycard and HSBC customers - may well agree. With American Express rejected by many UK retailers, Britons could have nowhere else to turn besides Mastercard - which just so happens to be Amazon’s own credit card issuing partner.
Source: Global Data, 19 November 2021
That makes you wonder what else is going on behind the scenes. Amazon knows it’s a tough ask to switch all its Visa users to a new form of payment, particularly for Prime subscriptions tied to Visa cards. It’s hard to imagine the company following through on its threats.
Many think Amazon is simply pressuring Visa to reduce its fees, and will ultimately back down before 19 January. Lower fees would certainly help Amazon’s retail arm, whose business is massive, but margins are small.
James Thomson, manager of the Select 50 Rathbone Global Opportunities Fund, thinks this is broadly correct, but feels this may not be a UK dispute at all - rather, it could be a precursor to greater conflict in the US.
He notes that the “UK credit card business is very small for Visa and represents well below 1% of the company’s total revenue”.
It’s a different story in the States, however, where US credit card fees are much higher than the UK’s. A battle over fees there could, in James’ eyes, “create margin pressure for the payment networks like Visa, Mastercard and the issuing banks who get the lion’s share of the fees from merchants like Amazon”.
In his opinion, then, the skirmish here probably represents Amazon “trying to gain leverage over their US position”.
What would that mean for UK consumers? Most likely smoke and mirrors. Amazon subscribers will probably be able to continue using their Visa credit cards.
And for investors? That’s trickier. Should the two take their differences stateside, Visa could have a real problem on their hands. So too could the many global and technology funds that feature the company prominently in their portfolios. Amazon, meanwhile, could usher consumers toward their own Mastercard-issued credit card.
One thing to be sure of - expect plenty of twists along the way.
James’ Rathbone Global Opportunities Fund features Amazon in its top 10 holdings, as does another Select 50 global fund, the Fidelity Global Special Situations Fund. You can find out more about those funds here.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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