VISA and Amazon blame each other over high fees, whilst startups look for new ways to help merchants reduce their heavy margin pressure

Davit Satyan

With the recent news that Amazon has stopped accepting VISA credit cards in the UK amid surging cross-border interchange fees between the UK and EU, we once again witness an attempt to impose a burden on retailers by the obese card scheme providers forcing businesses to pay even more despite the unfair fees already in place. It seems like an ongoing process as no one can predict how much more online businesses should pay to satisfy the growing appetite of VISA-Mastercard credit card duopoly and other intermediary financial institutions for which the interchange fees are often accounted to be the first revenue stream, hence they aren’t happy when these rates go down. What’s more, the interchange fees can increase again at any time and anywhere as bank card associations can set their own strict guidelines on any geography, and who can tell when...

 

The irony is that while everyone understands the importance of SMEs as the backbone of the world’s economy, there is still no consensus on introducing a fairer and more bearable cap on transaction and other fees these companies must pay. Because it's not just about card scheme providers and banks that charge high fees, but in addition to that, the fees imposed on smaller merchants by e-commerce platforms like Amazon are incomparably higher as for each sold product a seller pays up to 15% referral fee, for some categories even more, not counting the monthly fee paid for a selling plan and plenty of other associated costs. Some merchant platforms even generate additional revenue through inflated markups when their actual card processing costs are substantially lower. Therefore, cynical is the fact that no one wants to give up their share of the pie, but point their fingers at those who don't either. They all seem to be trying to squeeze as much money as possible out of small businesses that are struggling to keep up, hence they have to pass down the cost to the end consumer in the form of higher prices for their products and services.

So when a giant like Amazon, whose total UK revenue in 2020 was £20.63 billion, claims it costs them dear to accept VISA credit cards, even if the price increase was only 0.3% for cross-border payments between the UK and EU, which now makes 1.5% per transaction, what then online sellers have to say, who on top of the increased processing costs must give up to 15% or more of their income to this or some other e-commerce platform offering similar services. However, this is currently the price to pay if you want to trade there and take home some of your hard-earned money.

For all the above reasons, there are startup companies that are now taking direct competition both in finance and e-commerce sectors, with the likes of VISA and Amazon, challenging status-quo position these giants have long overused by charging far more than it could have been. With the aim to offer solutions that could bypass unnecessary processing costs and sales referral fees, our own startup YAN which was founded in 2020, also pursues one simple but ambitious goal - to build a self-sustaining organisation with the sufficiently built technological infrastructure capable of supporting the full cycle of banking and e-commerce operations that will help online merchants, especially individual sellers and SMEs, accelerate their online growth by paying the lowest possible transaction and sales fees. We already created our fully in-house developed acquiring technology that will enable our merchants to sell their products and services through our multi-industry Super App and YAN.market web platform with a minimal 0% acceptance fee. We continue working on solutions enabling the payments flow through application programming interfaces that will reduce the reliance on credit cards. In addition, we have also reduced fees on internal sales or referrals to 2%, which is unprecedented.

There is a continuous sentiment in the new wave of fintech startups to challenge the existing order of requirements set by card schemes, the era of dependence on interchange fees to be one of the main sources of income for financial institutions is gradually coming to an end. Payment solutions are rapidly evolving as the boundaries expand towards the democratization of the financial landscape as more competitors enter the market, offering their own innovations combined with additional features acquired through their partners, only to be of value to their user segments. Increasing the comfort of the services provided at the lowest cost is the main customer-centric approach that motivates payment and e-commerce innovators today. It will take time to materialize the global demand on completely rethinking the financial system, while also making the e-commerce trading more inclusive and affordable for merchants, and with no doubt the startups will lead the way.

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