It was interesting to see news out earlier this week suggesting Amazon will look to further bypass MasterCard and Visa for purchases on its platform.
According to a number of news outlets, including Bloomberg, Amazon is reported to be seeking to further close the payments loop, by partnering with a bank to provide a product similar to checking accounts.
If successful in creating an Amazon account, the ecommerce giant will effectively cut out the card networks and acquirers, all of whom take a clip on payments processed via Amazon.
According to Statista, in 2017 the net revenue of Amazon.com’s e-commerce and service sales was almost US$178 billion U.S. dollars, up from US$135.99 billion in 2016. With revenues rising at an increasingly rapid rate, thanks to the migration of bricks and mortar spend to online, it makes logical sense that finding ways to remove costs has moved up the product priority ladder.
Amazon has already made forays into the checking account space, albeit in a rather clunky manner. Prime Reload allows customers to use their existing debit card, linked to a checking account, to fund an Amazon gift-card balance. As a reward for using Prime Reload, cashback deals are offered on all purchases. Any money locked up in the system doesn’t earn interest, and the hassle of not being able to extract funds to spend elsewhere is another drawback.
The online retailer also offers a cash back and rewards credit card with Chase, one of the banks rumoured to be in discussions with Amazon regarding the new checking account feature.
So all in all, if this product eventuates, it will likely slash Amazon’s payment overheads, which could be pocketed by Amazon as additional profit, or passed through to merchants to reduce sales fees and payment costs.
What is the fall out or opportunity from all of this?
- Card issuers and schemes stand to lose wallet share if Amazon can convince people to change payment behaviour and open checking accounts with them for Amazon purchases
- The bank of choice will win by growing deposits
- Smaller ecommerce merchants who sell similar or comparable products will need to work harder to differentiate to attract sales away from Amazon. It’s not true to say this is a completely new unfair advantage on the payments front, as Amazon’s negotiating power would already have secured it great processing rates.
This strategy doesn’t have to be limited to Amazon and their bank of choice. Nothing stops a conglomerate/community of small businesses doing something similar with another bank. Amex Shop Small is an attempt at this type of community purchasing mentality with small business, but it doesn’t really help the small business on the fee front. They’re still stung with big merchant service fees at the point of sale for these premium cards.
If you took the token and coin route, you could also imagine any money you held in this account sitting in a fund that invested in SME coins, that fluctuated in line with market movements. This would be analogous to having your checking account money invested today in an ETF that tracked the S&P 500 or ASX200, but readily on call, with no tax implications when you cashed out to spend. Yes, you’d open yourself up to the downside, but there would be plenty of people willing to bet on the longer term upside.
All in all, the humble checking account is well overdue for some innovation. If Amazon have their way, it seems they’ll be leading the charge.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy.