Visa and Amazon finally put their disagreements to rest to come to a deal, but is the payments provider a good long-term investment?
Feb. 17, 2022
A number of companies have struggled to see eye to eye on deals where billions of dollars could potentially be at stake — take Google’s Disney controversy for example. But, the drama-induced facade is just Big Tech trying to bargain and take a larger piece of the pie for themselves. In Visa’s (NYSE: V) case, however, it showed no interest in submitting to Amazon (NASDAQ: AMZN).
Why a Visa Amazon deal was inevitable
If you weren’t aware, the dispute was over fees charged by Visa. Starting last year, Visa quintupled its fees charged in the UK and the EU; 1.5% from 0.3% for online orders by credit card, and 1.15% from 0.2% for debit card transactions. Amazon clapped back with a 0.5% surcharge in Australia and Singapore at the time but has now scrapped the penalty.
Other options had been considered by the e-commerce giant, but realistically, it was always going to affect orders and limit customer choice. After all, it came to the dismay of millions of customers in Europe, particularly the UK and Ireland, and Amazon quickly went back on its decision after realizing this could affect millions of orders from loyal customers.
So it’s no surprise that Amazon did a u-turn. Of course, Visa knew this from the beginning. Its established network among consumers makes it really only one of two options — Mastercard being the other — for a multinational processing billions in transaction volume. But it might not have been so easy had consumers, and Amazon not been so stranded for choice.
Is Visa still a good investment in 2022?
Visa has led the way in international payments for decades, taking a commanding share in Europe and North America, and for a long time, it, along with Mastercard, has operated a highly profitable duopoly that has transformed them into market leaders. Not to forget either, Visa’s strategic investment in Stripe back in 2015 means it has a chokehold on the online payments industry.
Still, the payments space is becoming increasingly crowded as the years fly by. While the two above still hold a commanding position in the market, new entrants are popping up all the time — take Apple, Block, and Affirm as some publicly traded companies trying to scoop up market share.
Another point to make is Berkshire Hathaway’s investment in the duopoly. Although Berkshire has been a long-time bull of both, the international conglomerate recently trimmed its Visa stake by roughly $1.8 billion — that’s quite the move, even for a company the size of Berkshire.
While I doubt we’ll see any major headwinds in the foreseeable future, Visa is likely to be tested a lot more down the road, and when that day arrives, it may not have the same negotiating power that it was able to use against Amazon in this case.