Canada Post’s partnership with Amazon Cash stops short of postal banking

When topping up an Amazon account, a trip to the post office usually doesn't come to mind as a way to add funds. But for the past couple of weeks, Canadians have been able to do just that at any of Canada Post's 6,200 locations. The Canadian launch of Amazon Cash, or the ability to top up an Amazon account using cash or a debit card at a physical retail location, follows the release of similar products from Amazon in the U.S. and the U.K. What's different about the Canadian example is the use of the post office as the place to add funds. It's a way to help unbanked and underbanked consumers digitize their cash in person, and it marks a step into the payments arena for the postal provider. But it doesn't mean Canada Post or Amazon are getting into banking. "This is a distribution play," said Alyson Clarke, principal analyst at Forrester Research. "[Amazon] will be adding other retailers, and they're rolling out the same model here in the U.S.," she said. Clarke added that an Amazon Cash top-up transaction at a post office is no different than going to a 7-Eleven location in the U.S. to do the same thing and that Amazon plans to add additional top-up points at Canadian retailers. So, in effect, Canada Post becomes yet another distribution point for Amazon. For Payment Source, which is working with Canada Post to build the back-end technology for Amazon Cash transactions, it's about financial inclusion. According to the Canadian Bankers Association, 99 percent of Canadians have bank accounts. But Robert Hyde, vp of payments services at Payment Source, said it's a way to reach consumers with low account balances or those who don't use their accounts heavily. "These are people who may have a bank account but have a low or zero balance; they're not using it as a primary financial instrument," he said. "Think of Generation Z -- they may have a bank account and are getting allowances; they're holding on to cash and want a mechanism to pay for things [digitally] with that cash." Hyde adds that despite the digitization of finance, Amazon Cash is a nod to the importance of the brick-and-mortar locations for customers who may be less comfortable with entirely digital transactions. "There's been a growth in the desire for people to pay in person, and Canada Post is happy to support that kind of transaction," he said. Payment Source has also built technology for Canada Post customers to refill prepaid mobile phone accounts at post office locations, purchase prepaid gift cards and since earlier this year, pay income tax bills at post office payment kiosks. The postal provider said it's an add-on to money services already available to customers. "You need a brick-and-mortar type way to get that cash [of underserved customers] into digital, and it can be done through the post office, in partnership with Amazon, PayPal or whoever would do this," said Mehrsa Baradaran, a professor at University of Georgia School of Law who has written extensively about postal banking. Baradaran said the Canada Post-Amazon partnership offers important lessons for the U.S., where debates about postal banking made the rounds during the 2016 U.S. presidential election. (For example, former presidential candidate Bernie Sanders made postal banking a campaign position.) But despite the advantages of the Amazon Cash solution for the underserved, Baradaran said the necessity to tie consumers to the Amazon ecosystem is a drawback. "There's strings attached, and theres's a conflict of interest," she said. "If another company like PayPal could give customers more freedom, they would be better poised to take this on, and someone is going to do it." Despite the Canadian postal provider's moves into financial services, for others, postal banking is rife with problems, including the necessity to train staff and build costly infrastructure. As the Canada Post Corporation Review Task Force highlighted in a report last year: "Launching a traditional postal bank today would be entering a highly competitive market and an expensive endeavor requiring significant investments in infrastructure, IT, security, acquiring new skills sets and compliance with complex regulatory requirements, both domestic and international." Ron Shevlin, director of research at Cornerstone Advisors, said using financial services as an anchor to sustain a postal banking model based on physical locations doesn't make business sense in a context where banks are reducing their physical footprint. "The idea of turning post offices into bank branches has been around for a long time, and it’s a supremely stupid idea," he said. "The business rationale for keeping branches open, or even opening new ones, is generally centered around the provision of financial advice and guidance. Personally, I’ve yet to find someone working in a USPS branch qualified to give me financial advice." Photo courtesy of Canada Post