🙏Amazon and Visa finally settle their beef

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Amazon and Visa finally settle their beef

What’s going on?
Amazon has struck a deal to continue accepting Visa credit cards, weeks after the online giant threatened to end the partnership in the UK.

Why is this important?

It was last November that the biggest online retailer started a row with one of the largest card issuers in the world.

Amazon claimed Visa’s transaction fees were too high. Since Brexit the cost of cross-border transactions between firms in the UK and the European Union have risen. Visa has increased their fees from 0.3% to 1.5%. These costs are paid for by Amazon itself or merchants on its platform which either gets passed on to consumers or dents company profits.

Visa and its rival Mastercard are the two major payment networks that dictate the rates merchants pay in swipe fees. Most of those fees go to the banks, but Visa has long been criticised for the way it calculates these rates. 

In January, when Visa credit cards were due to stop being accepted, Amazon announced at the last minute that the block had been postponed, leading many to suspect that a long-term deal could be on the cards.

Then yesterday an agreement was reached to continue the partnership indefinitely. It means that Visa credit card customers will not need to update their payment details on Amazon. The companies also announced a joint commitment to collaborate on new product and technology initiatives. 

Zooming out

RETAIL
Luxury sector shrugs off inflation concerns

The past month has seen a wave of consumer goods companies reporting that the rising costs of everything from shipping to raw materials will bring real challenges to their profitability this year.

The likes of Unilever, Heineken and Nestle have all said that although they’ll try to pass the cost increases on to their price-conscious customers, it’s likely that profits will take a hit.

But luxury companies are not having the same issues. High-end retailers are raising prices on handbags, clothes and shoes—and facing little resistance so far from shoppers. The price of Chanel’s iconic medium classic flap bag has been bumped up three times over 2021—each time hiking its cost by $1,000.

Louis Vuitton owner LVMH and Gucci’s parent company Kering have all announced strong earnings growth in the past year helped by their ability to raise prices as cost inflation grows.

So why are luxury companies so resilient to cost pressures? The demand for mass-market goods are a lot more sensitive to price increases compared to luxury goods which are targeted at the wealthy. 

Put simply, to a person who can afford a $10,000 designer bag, what is an extra $1,000 inflation fee added on?