Payments

Cheatsheet: What to know about Prime Reload, Amazon’s latest rewards program

  • Amazon has unveiled a new rewards program -- for debit card users. Despite having a credit card business of its own, it's urging its customers to pay with their checking accounts.
  • The offering may not threaten banks but it adds to the online retail giant's existing offering of bank services, such as small business lending, consumer credit and payments.
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Cheatsheet: What to know about Prime Reload, Amazon’s latest rewards program

Amazon introduced Prime Reload Tuesday, which rewards 2 percent of purchases back to Prime members who fund their Amazon balances with their debit cards.

The key updates:

  • To register for 2 percent rewards, users (they need to be Prime members already) provide their debit card number, U.S. bank account and routing numbers (Amazon will “sometimes route orders through your debit card instead of your bank account,” to complete the reload more quickly, it states on the website) and U.S. state driver’s license number.
  • Users top up their Gift Card Balance with their checking account or the debit card associated with the checking account. They get the 2 percent back into the Gift Card Balance at the same.
  • Purchases aren’t eligible for 2 percent rewards when shoppers reload using a credit card, even if it’s one of Amazon’s own branded credit cards.

The key numbers:

  • 66 million Amazon customers in 2016 were Prime members, compared to 46 million the year before.
  • 40 percent of Prime members spend more than $1,000 a year on Amazon (compared to just 8 percent of non-Prime shoppers).
  • Amazon offers two branded Visa Signature credit cards; one for Prime members that rewards 5 percent back and special financing options, one for non-Prime members that offers 3 percent back. Both were launched this January.
  • Prime subscription revenue was $5.7 billion in 2016, assuming 90 percent of Amazon’s “retail subscription services” revenue (which also includes audiobook, e-book, and digital video and music services). Under the same assumption, it generated $4 billion in Prime subscriptions in 2015.
  • 32 percent of shoppers that own a store branded credit card are Amazon cardholders; Amazon ranks number 1 among consumers with store cards, followed by Target (30 percent) and Macy’s (24 percent), as reported by the Vyze Retail Credit Survey.

The analysts’ view:
Cherian Abraham, senior business consultant, Experian: “Amazon primed this move — no pun intended — to take place once the Prime customer base reached sufficient scale to make this economical for Amazon to bring to its Prime base. Reloading an Amazon prepaid account via a bank debit allows Amazon to keep the cost low and one-time, whereas for the bank it disallows revenue that it would have realized for every Amazon transaction — and it loses visibility on to these transactions. And a prepaid load off of debit is a far less risky proposition compared to its own branded credit. Further this move allows it to go to a new segment of customers who are Prime customers but don’t own a an Amazon branded credit card.”

Brendan Miller, principal analyst, Forrester Research: “When you add money from an outside account into a gift card account, that is often treated very differently by the consumer than money sitting in their actual bank account. There’s an emotional difference about it. It tends to get spent more readily than when it’s sitting in your bank account and people are trying to manage budgets… It also reduces Amazon’s card processing fees. Instead of me making a bunch of transactions on my credit card, I’m making fewer transactions because it’s being reloaded, say, once or twice a month versus the seven, eight, nine separate purchases I make each month on Amazon. Then I’m only paying with my card twice to reload it so Amazon’s transaction fees will be lower. Debit is always cheaper to process than credit.”

The big picture:
Forget the rumors about Amazon potentially buying a bank. Amazon practically is a bank. To date it has a foot in payments, cash, small business lending, consumer credit and now it’s coming for debit card users.

It’s not necessarily positioning itself to replace the existing banks, Miller said, it’s just another way for people to interact with their money at a time when consumers funds are becoming more and more dispersed. Too bad for banks, that naturally means they’ll be taking fewer and fewer deposits and eventually, engage less and less with their customers, who will be engaging more with service providers like Amazon.

“There was already a trend of bank card spend being consolidated inside apps and services, and we are seeing the downstream risk to banks who are aware of this trend but aren’t do anything to act on it,” Abraham said.

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