In November last year, Amazon’s UK website told customers that it would no longer be accepting payments via UK-issued Visa credit cards. This was due to a dispute with the financial services corporation over the high fees charged for processing transactions. The announcement sent shockwaves across the market, and a reported 4.7% slump in Visa shares erased USD 22 billion in value.

Amazon’s conflict with Visa

This was not the first time that the ecommerce giant had caused disruption. In August 2021, customers in Singapore were informed that Amazon would be implementing a 0.5% surcharge on all orders made using a Visa credit card. This was followed up a month later with a similar announcement in Australia, although both of these were later dropped.

In the United Kingdom, more than 50% of all payments are credit card-based, with Visa having an 82% market share. This movement would have affected millions of consumers who use a Visa credit card to buy products. In addition to this, some of the UK’s biggest banks, including HSBC, offer Visa on credit cards. Meanwhile, Barclaycard, the UK’s biggest credit card company, only uses the Visa network.

It was suggested that Brexit was to blame for this maneuver. Post-Brexit, an EU cap on interchange fees that had applied to the UK was no longer relevant. This allowed card networks to raise their charges.

Interchange fees vary from country to country. The EU has increasingly sought to regulate these fees, hoping to create equality across their member countries and increase card competition in the EU single market. They introduced a cap of 0.3% for credit cards in 2015, which was amended in 2019 to include online or phone transactions at 1.15% and 1.5% respectively.

Due to the cross-border nature of transactions now between the EU and the UK, with Amazon’s transactions being processed in the EU, Amazon would have been liable for the 1.15% interchange fee on an online purchase.

Visa bites back at Amazon

Amazon stated that the fees were an obstacle to them providing the best prices for customers. Meawhile, Visa accused Amazon of decreasing consumer payment options.

This isn’t the first time a large retailer has challenged well-established payment providers. Yet, Amazon had been observed pressuring Visa to lower its fees for some time.

This is a sign of the growing frustration from retailers over the costs associated with major card networks. The dispute could be a sign for the credit-card industry, showing that large retailers have the power and potential to seriously disrupt the banking sector.

Fortunately, the dispute between Amazon and Visa seems to have been settled now. The two businesses having reached an agreement after weeks of negotiations to postpone the ban for UK users.

It is also worth noting that the Payment Systems Regulator launched a review last year. This found that interchange fees had significantly increased since the EU cap was lifted. The Regulator is considering whether action needs to be taken on the issue.

Is Amazon entering the payment space?

Although Amazon and Visa seem to have buried the hatchet, for now, is this a sign of things to come? Is Amazon building its own next-generation bank?

Fintech startups had been expected to be the most likely disruptors. Yet, big technology companies like Amazon are moving towards entering the financial services sector themselves.

Amazon has an extensive customer base, digital prowess, and customer experience skills, alongside services such as Amazon Cash and Amazon Pay. in addition to offering working capital loans for SMEs and their own co-brand credit card, Amazon seemingly has everything needed to succeed in banking.

There has even been speculation for years that Amazon will offer a checking account. With customers replacing a credit card with an Amazon bank account, Amazon would be able to avoid millions of dollars in fees from credit companies altogether.

Have credit cards reached their expiry date?

Roger De’Ath, Head of Ecommerce at TrueLayer, believes technology offers an opportunity. Tech could offer retailers solutions that allow them to break away from the grasp of card networks and the invisible layer of hidden costs and unwieldy payment structures they demand.

Consumer expectations are rising along with new technologies, and as consumers grow used to easy and convenient ecommerce payments. Banks and credit card companies may have to reorient and accelerate their rate of progress in order to remain relevant. Otherwise, they risk being removed from forward-thinking retailers like Amazon, Facebook, and Google, ultimately losing access to the market.

The likes of Visa, Mastercard, and American Express are already facing competition from challengers such as Affirm, Afterpay, Klarna, and Sezzle that offer buy now, pay later (BNPL) services. Klarna particularly, until recently, had seen impressive growth with its customer base expanding from 7 million to 16 million since the beginning of 2020.

Of course, we recently saw Klarna’s valuation plumment following a round of lay-offs made in anticipation of a coming recession. Yet, these issues had everything to do with a coming financial crunch, and little to do with the potential of the BNPL market.

BNPL brands are still chipping away at the market share for credit card companies. GlobalData’s research reports that 47% of under 35s today do not own a credit card. Instead, young people are turning more and more to BNPL schemes that act as an entry product for younger consumers new to credit. Is this a sign that lenders need to offer BNPL to stay relevant to retailers?

The benefits of BNPL

BNPL services offer interest-free purchases, have softer credit checks, and are often manageable via apps. This makes them more accessible and convenient than having to apply for a credit card, appealing to the younger, more technology-savvy generations. BNPL has changed consumer expectations of the borrowing experience and expanded the role lenders can play in shopping journeys.

Ultimately, in order to sustain profitable growth, credit card companies may need to rethink their products, economics, and value propositions. Otherwise, they may be squeezed out by, not only the new fintech kids on the block, but by powerful retailers willing to throw their weight around. Re-imagining products to meet today’s consumer needs, alongside attracting younger consumers with tailored solutions, should be at the forefront of the industry’s minds.

The three Rs of BNPL could win over Amazon

Indeed, established lenders are empowered by ‘three Rs’:

1. Reputation
2. Regulation
3. Recession

Established lenders have an existing reputation in the market, a relationship with the regulators who currently have BNPL in their sights, and the resources to outlast the coming recession. Established lenders offering a BNPL position could take over the market and offer something valuable to eretailers like Amazon.

To do that, however, you need the right technology, and digital transformation is, of course, far from easy. That’s where the FintechOS platform comes in.

To find out more about how FintechOS can turn any bank into a digital BNPL provider, see our BNPL solution page.

Via: https://fintechos.com/

Eligible U.S. PayPal customers who purchase PYUSD will be able to transfer PYUSD between PayPal and compatible external wallets, send person-to-person payments using PYUSD, fund purchases with PYUSD by selecting it at checkout and convert any of PayPal’s supported cryptocurrencies to and from PYUSD.

PayPal says that when you buy or sell cryptocurrency, including when you check out with crypto, it will disclose an exchange rate and any fees you will be charged for that transaction.

“PayPal USD is designed to reduce friction for in-experience payments in virtual environments, facilitate fast transfers of value to support friends and family, send remittances or conduct international payments, enable direct flows to developers and creators, and foster the continued expansion into digital assets by the largest brands in the world,” PayPal wrote in a press release. “Most of the current volume of stablecoins is used in web3-specific environments — PayPal USD will be compatible with that ecosystem from day one and will soon be available on Venmo.”

John Doe, LineThemes

As an ERC-20 token issued on the Ethereum blockchain, PayPal says PYUSD will be available to a growing community of external developers, wallets and web3 applications; can be easily adopted by exchanges; and will be deployed to power experiences within the PayPal ecosystem.

A stablecoin is a type of cryptocurrency whose value is tied to an external asset, such as the U.S. dollar. There is some controversy around stablecoins. Last year, Meta ended up abandoning its plan of having its own stablecoin, called Diem, after regulatory backlash. PayPal itself paused working on its stablecoin earlier this year amid regulatory scrutiny of crypto, as reported by Bloomberg at the time.

PayPal first introduced crypto services back in 2020 when it began letting users in the U.S. buy, hold and sell cryptocurrencies. Then, in 2021, PayPal announced the launch of Checkout with Crypto, a feature that allowed consumers to check out at millions of online businesses using cryptocurrency. Last year, the company gave users the ability to transfer cryptocurrency from their accounts to other wallets and exchanges.

“The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar,” said PayPal CEO and president Dan Schulman in a press release. “Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.”

PayPal says Paxos will publish monthly reports detailing the assets backing PYUSD starting next month. Paxos will also publish a public third-party attestation of the value of PYUSD reserve assets.

PayPal’s shares fell 7% in extended trading last Wednesday as investors were disappointed by the company’s quarterly operating margin. The payment company’s adjusted operating margin for the quarter came in at 21.4%, missing its forecast of 22%.

Via: https://techcrunch.com/

The UK central bank wants to create a team of up to 30 people to oversee the project, according to a report by the Times.

“A team of 30 seems like quite a significant resource to focus on the digital pound,” Ian Taylor, an adviser to the trade association CryptoUK, told the Times. “It shows the impact it would have, and that the bank are serious about it.”

Ian Taylor, CryptoUK

The Bank in late March posted openings for a digital pound solution architect “to explore the technology design and architecture options for a potential retail CBDC”, and a digital pound security architect, whose role will be “to explore and develop secure technology design and architecture options for a potential retail CBDC”.

The job ads state: “HM Treasury and the Bank of England have recently issued a Consultation Paper setting out an assessment of the motivations and design choices for a potential digital pound, alongside a Technology Working Paper which outlines our emerging thinking on CBDC technology. These papers signal that our work will now move onto a design phase, which will look at the technology and policy requirements for a digital pound.”

In February, Bank of England deputy governor Jon Cunlifffe told a committee of MPs that a digital pound has a better than 50/50 chance of coming to fruition.

“These are big projects… this would be a very serious thing that would have to be resilient, fraud-proof, secure,” Cunliffe said. “If we just wait until we say OK now we think it’s needed, we will be five years behind.”

Via: https://www.finextra.com/