From payments and lending to insurance and checking accounts, Amazon is attacking financial services from every angle without even applying to be a conventional bank. In this report, we break down how these efforts impact merchants and consumers. We also dive into various initiatives Amazon is pursuing, ranging from cashierless payment terminals to health insurance for sellers.
In 2017, Andreessen Horowitz general partner Alex Rampell said that of all the tech giants that could make a major move in financial services,
“Amazon is the most formidable. If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.”
While the anticipation for Amazon’s plunge into banking builds each year, it’s important to first understand Amazon’s existing strategy in financial services — what Amazon has launched and built, where the company is investing, and what recent products tell us about Amazon’s future ambitions.
Based on our findings, it’s hard to claim that Amazon is building the next-generation bank. But it’s clear that the company remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem.
As a result, the company has built and launched tools that aim to:
- Increase the number of merchants on Amazon, and enable each merchant to sell more.
- Increase the number of customers on Amazon, and enable each customer to spend more.
- Reduce any buying/selling friction.
In parallel, Amazon has made several fintech investments, mostly focused on international markets (India and Mexico, among others), where partners can help serve Amazon’s core strategic goal.
In aggregate, these product development and investment decisions reveal that Amazon isn’t building a traditional bank that serves everyone. Instead, Amazon has taken the core components of a modern banking experience and tweaked them to suit Amazon customers (both merchants and consumers).
In a sense, Amazon is building a bank for itself — and that may be an even more compelling development than the company launching a deposit-holding bank.
This report is a collection of everything we know about Amazon’s foray into banking, financial services, and fintech. We will be updating this brief on an ongoing basis as more relevant data, investments, news, and products are released.
Table of Contents:
- Amazon financial services in India
- Amazon financial services in Mexico
- Amazon financial services in South America
Product strategy: Amazon takes on financial services
Amazon is notorious for spreading its bets before going all in on a new product, and the financial services space is no exception. Through trial and error, the company has set up key financial pillars across payments, cash deposits, and lending. As we’ll explore below, all are related to Amazon’s broader growth and product strategies.
Amazon has aggressively invested in payments infrastructure and services over the last few years. That’s unsurprising, given that the payments experience is so close to Amazon’s core e-commerce business. Making payments more cash-efficient for Amazon and frictionless for customers is a key priority.
What is Amazon Pay: a digital wallet and a payments network
Today, Amazon Pay has evolved to include a digital wallet for customers and a payments network for both online and brick-and-mortar merchants. Since 2019, Amazon has invested in growing Amazon Pay’s marketplace, including forming a partnership with acquiring bank Worldpay.
While Amazon Pay is the company’s latest iteration on payments, Amazon has experimented with payments functionality for over a decade. Below is a timeline of some of the major Amazon Pay milestones:
Amazon’s first known payments product, Pay with Amazon, launched in 2007. That same year, the company acquired TextPayMe, a peer-to-peer (P2P) mobile service that was re-launched as Amazon Webpay in 2011.
In 2007, the company also invested in Bill Me Later (fka I4 Commerce). Bill Me Later was one of the earliest fintech payment platforms on the market and gave big retailers the ability to offer flexible financing programs. Although Bill Me Later was scooped up by PayPal in 2008, Amazon remained ever focused on reducing payment friction for customers.
Over the last few years, Amazon has used a variety of techniques to strengthen its payments experience, including launching digital wallets through Amazon Pay, acquiring tech talent of failed mobile payments startup GoPago, building a variety of tech in-house, and most recently opening up to partnering with merchant acquirers outside of Amazon’s marketplace.
Today’s iteration is Amazon Pay, a digital wallet for customers and a payments network for both online and brick-and-mortar merchants and shoppers.
Amazon Pay’s Traction and metrics
In addition to serving Amazon’s core customers, payments is an attractive revenue line when thinking about the scope of the payments market. Swipe fees paid by US merchants alone are more than a $110B-a-year business for banks, card networks like Visa, and payment processors like Stripe.
Amazon is finding ways to attract merchants to the Amazon Pay network beyond its experimentation with swipe fees. The company announced it would pass on the special card savings Amazon gets from card networks (because of the volume of purchases they can guarantee) to retailers that adopt Amazon Pay. Leveraging scale and competing on fees is a classic customer acquisition strategy in Amazon’s playbook.
And while the company is famously secretive about reporting customer growth and business metrics, a 2020 survey revealed that Amazon Pay has grown into a major online payment provider with a 22% user share in the US. Payments made with Amazon Pay spiked following service expansion to new geographies — France, Italy, and Spain — and to new verticals, including government payments, travel, insurance, entertainment, and charitable donations.
However, Amazon has had some missteps with Amazon Pay. Its most famous failure was Amazon Local Register. With the talent acquired from GoPago, Amazon launched Amazon Local Register, a card reader for small- and medium-sized businesses (SMBs) in August 2014. At the time, the company charged competitive rates (a full percentage point less than Square). Each reader cost $10, and it seemed like a formidable rival to PayPal’s and Square’s readers.
But in October 2015, the company announced it would be shut down. Despite charging lower fees, the company failed to gain enough traction with merchants who feared giving Amazon detailed data on their overall business operations.
Eventually, Amazon launched a “Pay with Amazon” button for mobile and created a team with the goal of expanding payments across the web and on apps.
To lead this team, Amazon hired ex-PayPal employee Patrick Gauthier. In reference to failed payments projects, Gauthier said:
“What people never realize or truly understand about Amazon is that part of the recipe for success is daring to try things you have no idea whether will succeed or not, and if you think that you have a notion of how to succeed … you try again.”
Future developments of Amazon Pay: pivoting from e-commerce to omnichannel enablement
Off-marketplace integrations: Pivoting from e-commerce to omnichannel enablement
In March 2019, Amazon announced an integration with Worldpay, which serves as a back-end intermediary between banks and credit card companies and is one of the largest payment processors in the world.
It is a notable pivot from Amazon’s IP strategy, where the playbook has been to build, patent, and keep proprietary technology in-house to fuel Amazon’s marketplace. However, keeping Amazon’s customer-centric “day one” philosophy in mind, Amazon Pay’s top priority is reducing payment friction for customers to buy goods and services and for merchants to sell more things. This is also a second attempt to build distribution with merchants, picking up where Amazon Local Register failed to gained trust.
To achieve this, Amazon Pay set up a rare independent domain and is expanding from e-commerce to omnichannel — across web, mobile, and IoT devices.
The partnership is significant because of its potential to put Amazon’s Quick Payment button in front of millions of consumers and boost distribution with merchants.
At the time of the deal, Worldpay processed more than 40B transactions worth about $1.7T annually, supporting more than 300 payment types across 120 currencies. In July 2019, FIS announced it was acquiring Worldpay in a $43B cash-and-stock deal, indicating a strategic move to grow its merchant solutions business. Patrick Gauthier, VP of Amazon Pay, was reserved about the implications of the partnership:
“Today the announcement is about the extension of our footprint. It will lead us into more opportunities to grow the value proposition for buyers and merchants, but I will reserve discussion about that for the future.”
For Amazon, the combination of FIS and WorldPay is aligned with the company’s goal of reducing friction in payments for consumers and merchants, subsequently boosting commerce.
FIS could also be valuable for financial services pursuits as its suite of technologies ranges from POS systems to integrated card payments to cross-border payments, and covers both online and offline commerce. FIS is also one of the biggest providers of core banking processing and has integrations with Q2 technologies. Both are key elements that non-bank-chartered tech firms in the US have been leveraging to launch banking services, like checking and savings accounts.
Commerce has expanded well beyond desktop into mobile apps, IoT devices such as smart speakers, and other channels where Amazon does not have as formidable a position.
On the web, the infamous one-click patent helped boost the company’s payments prowess. But when the patent expired in 2017, it opened up the market for competitors to launch off-marketplace payment solutions.
To compete, Amazon is investing in its products, including by hiring product managers for device solutions. This could help Alexa move from the home and office into brick-and-mortar or point-of-sale (POS) environments.
Further, Amazon recognizes the need to diversify its dependence on third parties for its marketplace, even if that means enabling them off-platform.
While a short-term goal of the partnership seems to be to capture market share and reduce the processing fees charged by incumbents, in the long run, Amazon may look to close the loop and keep customers within the Amazon ecosystem.
Amazon Go: Amazon’s secret payments weapon?
Developing its products remains an area of strength for Amazon, especially as it iterates on its in-house biometric payments technology piloted within its expansive Amazon Go grocery stores.
Its Just Walk Out technology uses computer vision, sensor fusion, and advanced machine learning to enable a frictionless payments experience, and is based on technology that the company has patented in the past.
Just Walk Out is available through the Amazon app. It grants access to the store and allows customers to grab products and go without needing to stop and check out to pay.
Today, more than 20 Amazon Go stores are live in Seattle, New York, San Francisco, and Chicago.
The average annual sales of an Amazon Go location come in at about $1.5M, according to RBC Capital Markets. And with as many as 3,000 Amazon Go locations slated to open in the coming years, Amazon Go could become a $4.5B business.
Again, while the company typically does not make its proprietary technology available commercially, it looks to be taking a different approach with Amazon Go.
In March 2020, Amazon said that it had partnered with OTG to deploy its cashierless technology at CIBO Express stores at airports. Two such stores have been opened at Newark Liberty International Airport. The retail giant is reportedly in talks for a similar deal with Cineworld’s Regal Cinemas, a theater chain with more than 560 screens in the US.
Amazon could also look to roll out this tech into its Whole Foods stores or rumored independent grocery business in the future. The rollout in Whole Foods stores may reportedly start in Q2’21.
Prime Day: Amazon’s plan to adjust payment habits
Amazon Pay is still a niche payment method despite the company’s dominance in US e-commerce. This underscores the difficulty of influencing consumer behavior — especially when it comes to payments.
Alongside inventive products like Amazon Go, Amazon is using large-scale sale events like Prime Day to nudge people to use Amazon Pay.
During Prime Day 2019, Amazon offered consumers up to 30% cash back on purchases if they checked out using Amazon Pay. Customers received Amazon gift cards after using Amazon Pay at checkout from a specific list of participating merchants.
Incentives were offered on more than 30 retailers, including Brooklinen and Vineyard Vines. Offering cash back on an even wider variety of retailers could make sales a powerful technique for Amazon to encourage using Pay in the future.
Payments with a wave of the hand: Amazon’s plan to link payments data with biometrics
Alongside its cashierless store plans, Amazon has its eyes on eliminating the need for physical credit and debit cards altogether. In September 2020, the company launched Amazon One, a set of software and hardware technologies that let users pay using their palms. Customers first have to register to use this service by inserting a payment card in an Amazon One device and scanning one or both of their palms. Once registered, they enter and leave stores by placing their hand above a sensor at the entrance. Smart cameras and shelf sensors detect products customers take. The system then automatically charges customers as they leave the store. Later on, Amazon plans to enable users to assign one card to each palm.
Amazon One will initially be available at Amazon Go stores in Seattle. The company plans to roll out this tech across other stores in San Francisco, New York, and Chicago.
Amazon One terminals could be placed in any brick-and-mortar location, such as a coffee shop or restaurant. But the company isn’t yet saying when this technology will be offered to other companies. Amazon reportedly tested this system at vending machines in some of its offices and has partnered with Visa. It also has reportedly held talks with Mastercard, JPMorgan Chase, and Wells Fargo.
Alexa, pay for gas: Payments through voice commands
Amazon Pay VP Patrick Gauthier believes that, like e-commerce and mobile commerce before it, voice commerce has massive potential. The global voice shopping market is poised to grow from $2B to $40B by 2022, according to CB Insights’ Industry Analyst Consensus.
In September 2020, Amazon launched a new feature that enables customers to pay for gas at over 11,500 Exxon and Mobil gas stations across the US with a voice command to their Alexa-enabled vehicles or other mobility devices. All transactions are processed through Amazon Pay.
Amazon has partnered with Fiserv, a financial services tech company, which will enable the pumps to be activated at the voice command and ensure the payment goes through securely.
The retail giant also offers Alexa-enabled shopping for Atom Tickets, a Santa Monica, California-based company that allows users to purchase movie tickets prior to going to the theater. Shoppers can also pay their utility bills through Amazon Pay by sending out a voice command to their Alexa-enabled devices.
While Amazon has not yet announced any other applications of its voice command-based shopping features, a survey it conducted in 2019 showed that 44% of its customers were likely to try voice commerce over the next 3 years. The company also launched Paytalks, a webinar that educates merchants on how to use voice strategy to grow their business.
Amazon Payment Services
In December 2020, Amazon launched Amazon Payment Services (APS), a payment service provider that covers the Middle East and North Africa (MENA) region. APS is a rebranded version of Payfort, a fintech startup acquired by Amazon in 2017. Amazon teamed up with a number of leading banks in the MENA region, including Al Rajhi Bank, Mashreq, and First Abu Dhabi Bank, to launch this payment service.
APS is offered to companies in 8 countries. Source: Amazon
Companies using APS can offer online customers the option to pay using global payment methods like Visa and Mastercard as well as local card schemes such as Meeza and Mada. Customers can also pay in monthly installments using cards issued by local and international banks.
APS offers other benefits as well. Businesses can reduce checkout friction by allowing repeat buyers to skip specific authentication steps. APS also provides security solutions that reduce fraud and chargebacks. Companies then get to enjoy a higher percentage of accepted payments. And teams can use APS to build dashboards, merge data from various sources, and keep track of business goals.
The Amazon Cash program bridges the gap between online commerce (using debit or credit cards as payment) and offline commerce, which relies on “cash on delivery” options like cash and gift cards.
Amazon Cash launched in April 2017 to allow customers to deposit cash, without a fee, to a digital account by showing a bar code (either printed physically or digitally) or their phone number linked with their Amazon account at a partner brick-and-mortar retailer, such as CVS or 7-Eleven.
Amazon Cash fits neatly into Amazon’s strategy of appealing to underbanked and unbanked populations — customers only need access to the internet and a printer to open an account, rather than requiring a bank account or a phone.
Prior to Amazon Cash, unbanked and underbanked populations were an unaddressed customer base for the online retailer, as discussed in the Traction section below.
Since Amazon Cash’s launch, Amazon has made a few key product developments:
In May 2018, Amazon Cash extended its partnership with Coinstar to allow customers to deposit spare change at Coinstar kiosks and cash out digitally with the Amazon Cash app, instead of in cash or physical gift cards.
Coinstar has nearly 20,000 kiosk locations across mass merchants and select financial institutions. The goal at launch was to enable 5,000 kiosks with the new service by the end of 2018, with Amazon looking to roll out services to more kiosks down the road.
The location of kiosks — typically in grocery stores — is a newer cornerstone of Amazon’s business following its acquisition of Whole Foods. They are also found in high-traffic areas that Amazon competes with, including rival retailers such as Walmart. This partnership helps Amazon encourage customers to spend more on Amazon.com, and fits Amazon’s core strategic goals of strengthening the Amazon ecosystem and increasing participation.
PayCode: Bringing Amazon offline with Western Union’s network
A more recent pillar in Amazon’s fintech strategy is bringing parts of the world without the infrastructure to support digital payments into the Amazon ecosystem.
With PayCode, Amazon is allowing consumers that haven’t previously been able to purchase goods on Amazon to buy items through the site and pay for them in cash via QR codes. Amazon piloted PayCode in countries including Colombia, Chile, Hong Kong, Kenya, Indonesia, Malaysia, the Philippines, Peru, Taiwan, and Thailand. It then expanded the program to Barbados, Costa Rica, Jamaica, Kazakstan, and Uruguay, before opening it to the US in September 2019. PayCode has also been introduced in the Federated States of Micronesia, Marshall Islands, Mauritius, Palau, Philippines, and Tanzania.
The program is a partnership with Western Union, which is providing Amazon with the financial infrastructure it needs to enable offline cash payments. In these regions, consumers can pay for Amazon purchases by visiting a Western Union location and making a deposit in cash.
PayCode gives Amazon a strategic way of assessing which markets might make the most sense for future expansion of Amazon’s core retail platform.
PayCode could also represent a way for Amazon to eventually expand its influence among the underbanked in countries where it already has a live retail market.
Amazon Allowance: A kid-friendly solution
In addition to targeting the unbanked and underbanked, Amazon has looked to leverage the Amazon Cash feature to tap into the next generation of consumers.
In mid-2015, the company added Amazon Allowance, which was later brought under the Amazon Cash umbrella. Using Amazon Allowance, and with parental consent, kids were able to set up their own Amazon accounts and make purchases using their Amazon Allowance. Parents could allocate recurring funds to their child’s account and get the added control of overseeing what their kids purchased. However, the company discontinued this feature in July 2020.
Amazon has also made investments in improving kids’ access to the platform.
In December 2017, Amazon’s Alexa Fund participated in a $16M Series A to Greenlight Financial, an alternative debit card issuer aimed at young consumers. With the card, parents can manage spending limits and allocate funds for their children through a mobile app. In March 2018, Greenlight Financial announced crossing 100,000 customers, growing its customer base 300% since the investment. In August 2019, Greenlight raised a $54M Series B from investors including Wells Fargo, JPMorgan Chase, Drive Capital, Relay Ventures, and TTV Capital. And a year later, the company raised $215M in Series C at a $1.2B valuation.
Greenlight Financial’s core business is complementary with Amazon’s internal initiative of growing Amazon Cash customers by increasing penetration of younger shoppers.
Amazon Cash traction and metrics
Amazon hasn’t announced how many customers are using Amazon Cash, but it’s clear the market opportunity is large. A 2019 FDIC Survey of Household Use of Banking and Financial Services shows that approximately 5.4% of US households, which equals around 7.1M, were unbanked in 2019.
The international opportunity is large, too — for example, 190M citizens in India are unbanked and just 37% of adults have a bank account in Mexico. Amazon Cash could be an enabler for customer acquisition in markets that have high unbanked populations and entrenched local competitors, supporting Amazon’s goal of increasing the number of customers that transact on the Amazon platform.
Future developments of cash-based ops
Amazon is no stranger to looking outside its existing channels for growth opportunities.
The company could continue to expand the Amazon Cash and PayCode programs to other partners with high foot traffic (for example malls, colleges, grocers, etc.) or other geographies with highly underbanked populations and where QR codes are gaining traction as a payment method. Amazon could also leverage Whole Foods to launch more Coinstar kiosks, expanding the reach of the Coinstar partnership in a unique way.
Jeff Bezos has been more forward about Amazon’s desire to build out its lending arm than other financial service offerings.
In his 2016 annual letter to shareholders, Bezos outlined Amazon’s goal of expanding Amazon Lending: By continuing to work with partner banks to manage the bulk of the credit, the retailer can mitigate credit risk and calm investor nerves.
Today, Amazon’s business lending is available in the US, UK, Germany, Canada, China, France, India, Italy, and Spain.
Amazon also offers consumer lending in the US in the form of partner cards.
Amazon Lending initially launched in 2011 to help small businesses finance and sell more goods on Amazon. In 2018, Amazon Lending partnered with Bank of America Merrill Lynch to issue loans on an invitation-only basis that could range between $1,000 to $750,000. In 2020, Amazon inked similar partnerships with Goldman Sachs in the US and ING in Germany.
As part of its deal with Goldman Sachs’ Marcus brand, the bank will invite selected merchants to apply for a credit line of up to $1M. The application process is digital, and sellers are notified of approval results instantaneously. The credit line delivered through the Marcus brand comes with a fixed annual interest rate ranging from 6.99% to 20.99%. The amount approved can be drawn in several instances and repaid like a typical credit card.
This is the first time that Amazon will open up its treasure trove of sales data on its sellers to a third-party financial institution to make underwriting decisions.
In Germany, Amazon and ING will provide loans between €10,000-€750,000 ($11,250-$852,327) to SMBs.
From launch in 2011 to Q1’19, Amazon reported it issued $5B across more than 20,000 businesses in the US, Japan, and the UK.
Amazon’s lending business growth may be slowing, as it grew only 4.7% in 2017 and 2.6% in 2018, according to the Financial Times. However, this may be because the company is limited on how much capital it can lend without raising bank debt, or it may be a strategic decision to keep a cap on growth to avoid regulatory pushback.
In October 2018, Amazon expanded beyond loans to corporate cards issued by American Express in an effort to build its Amazon Business suite and attract new businesses to the marketplace. Launched in 2015, Amazon Business had over 1M business customers as of July 2017, and in 2019, the B2B platform’s gross revenue grew 3 times faster than the company’s overall revenue growth of 20.5%, according to RBC Capital Markets.
The card serves as a way to attract customers that have been turned down by traditional banks due to limited business credit history. Initially launched in the US, Amazon Business Prime is now available in the UK, Germany, Japan, and most recently Canada.
Perks include giving businesses control over employee spend, analytics tools for spend and inventory management, and discounts on Amazon Web Services (AWS). Prime members receive extra incentives, like priority shipping and pricing.
Amazon also offers services such as Pay by Invoice, which allows selected small businesses to buy now and pay within 30 days — or 45-60 days, if the customer has an Amazon Prime Business account. In addition, it offers SMBs a revolving credit line and a pay-in-full credit line, in partnership with Synchrony Bank.
B2B e-commerce transactions are expected to reach $20.9T globally by 2027 — reportedly growing at a faster rate than online retail sales. Amazon is looking to replicate the network effects of its consumer arm with SMBs, as having more Amazon Business customers will improve its ability to connect B2B buyers and sellers to transact directly, unlocking cost savings.
Amazon’s consumer lending
Amazon offers Amazon Prime cards to help serve 2 broader corporate goals: grow Prime customers and increase marketplace sales. To attract card customers, Amazon has been adding perks that are exclusive to Prime members. Cardholders are likely to spend more on Amazon than non-cardholders, which also benefits Amazon’s marketplace (and boosts customer loyalty).
On the consumer side, Amazon has tried out several partner cards for Prime and non-Prime customers, which include:
- Amazon Prime Store Card — Launched in 2015 with partner Synchrony Bank, it was Amazon’s first card exclusively for Prime customers, offering unlimited 5% cash back on Amazon purchases.
- Amazon Store Card — Offers some of the benefits of the Prime Store Card but for non-Prime customers. It does not offer the 5% cash back perk.
- Amazon Prime Rewards Visa Signature Card — Launched in 2017 with Visa, this card gives Prime members 5% cash back at Amazon and Whole Foods, 2% cash back at gas stations, restaurants, and drugstores, and 1% cash back on everything else.
- Amazon Rewards Visa Signature Card — Partner card with Visa for non-Prime customers that offers 3% cash back on Amazon and Whole Foods purchases, 2% cash back at gas stations, restaurants, and drugstores, and 1% cash back on everything else.
- Amazon Reload — A reloadable digital debit card available only to Prime members that offers 2% cash back on Amazon purchases. The card links directly to consumers’ checking accounts and can be reloaded on a recurring or one-time basis.
- Amazon Pay ICICI Bank Credit Card — In 2018, Amazon Pay and India-based ICICI Bank launched a Visa-powered, co-branded credit card. Prime customers of this card can earn 5% cash back on purchases made through Amazon India, while non-Prime customers get 3% cash back.
- Amazon Credit Builder — In Q2’19, Amazon partnered with Synchrony Bank to create a program that helps customers in the unbanked and underbanked income brackets boost their credit with a secured credit card. Like secured credit cards offered at banks, it requires a one-time deposit between $100 and $1,000 at the time of the account opening, which then becomes the card’s credit limit.
Both the Amazon Prime Store Card and Amazon Store Card offer 0% financing for consumers on certain kinds of Amazon purchases:
- Purchases of $150 or more if fully paid within 6 months.
- Purchases of $600 or more if fully paid within 12 months.
- Select Amazon purchases if fully paid within 24 months.
Amazon is also frequently featured as a destination to spend credit card points by credit programs including Chase Freedom, Discover Cash Match, and Blue Cash for Amex.
Future developments of Amazon’s lending ops
In 2018, Amazon extended the 5% cash back reward to purchases at Whole Foods on the Prime Rewards Visa Card. This is one example of how Amazon is adding perks and exclusive benefits for Prime customers, making the cards more competitive and attractive to customers in-store.
More broadly, Amazon’s Visa cards suggest it is pushing beyond limited-use store cards into everyday-use cards.
“Our vision is that every day Prime makes your life better, easier and more fun, and shopping at Whole Foods Market with exclusive deals and savings is all of this and more.” — Cem Sibay, vice president, Amazon Prime
Amazon’s addition of options for underbanked consumers and broader range of offerings — from cards with significant cash back rewards and 0% financing, to accepting SNAP benefits as payments, to launching secured cards for credit rebuilding — suggests that the company is looking to bring as many consumers as possible into the credit market and incentivizing them to stay through perks tied back to the ecosystem.
Amazon’s next financial pillar?
While Amazon is making moves across the payments, cash, and lending spaces, it could also look to further expand across the financial services ecosystem.
Amazon had patented methods for linking bank account information and for prepaid cards as early as 2004. As seen below, these patents offer supporting insights into what a bank account issued by Amazon could look like.
The company’s competitive advantage lies in its cloud infrastructure and online hosting. In the event that Amazon does decide to offer full-fledged banking account services, AWS would enable it to have cloud-based operations that would be more secure than traditional banks or its other Big Tech competitors.
However, while Amazon has pushed into checking primarily through its Amazon Cash offering, it seems to have abandoned plans to create its own checking account so as to avoid becoming subject to strict banking regulations, according to The Information.
Amazon has shown nascent interest across insurance markets and products.
The earliest reported foray into the space was in April 2016 with Amazon Protect, a white-label service in the UK that provides accidental and theft insurance on consumer goods ranging from headphones to kitchen appliances. Claims are underwritten through a partnership with The Warranty Group’s London General Insurance Company. The program has since expanded to other European countries including Spain, Italy, Germany, and France.
In June 2018, The Warranty Group, which underwrites Amazon Protect in the UK and abroad, was purchased by Assurant for a rumored $2.5B. The acquisition could make it easier to expand Amazon Protect to new markets that are under Assurant’s umbrella of lifestyle protection products.
Amazon also teamed up with the insurtech startup Next Insurance to provide eligible Business Prime members with access to small business insurance policies. In less than 10 minutes, users can purchase professional liability, commercial auto, general liability, and other types of insurance coverage. Small business owners get a certificate of insurance digitally. Amazon Business Prime customers also get a 10% discount for purchasing professional liability and general liability policies.
Meanwhile, Amazon made an early insurance push in India by leading a $12M investment in insurtech startup Acko in May 2018, as well as taking part in a $60M funding round closed in 2020. Acko offers traditional car and bike insurance policies, but it is increasingly focused on “internet economy” deals, which primarily consist of e-commerce, travel, and ride hailing-focused products such as an in-trip insurance program with Ola. On its new investor, Acko CEO Varun Dua said,
“The idea is to find some way to collaborate in the future. We’re a new age insurance company and [Amazon] believes it can create value.”
In September 2018, Amazon made its interest in the insurance market in India even clearer when it filed with the country’s Registrar of Companies to begin selling its own health, life, and general insurance products. In March 2019, Amazon received its corporate agent license from the Insurance Regulatory and Development Authority of India, clearing the way for the company to proceed further.
Amid the Covid-19 pandemic, Amazon began offering cost-free health insurance to its sellers in India, with Acko handling the policies, claims, and reimbursement.
In September 2019, Amazon rolled out a pilot for Amazon Care, a health insurance service for its employees in the Seattle, WA area. It comes as part of the company’s joint venture with JPMorgan Chase and Berkshire Hathaway, called Haven Healthcare. But this venture disbanded in early 2021 as many of its initiatives failed to take off.
Amazon is instead moving forward on its own. In March 2021, the company announced the rollout of Amazon Care to its employees in all 50 states. And in the next stage, this telehealth service will be offered to other employers as well.
Spain-based BBVA has also begun to operate product sales on Amazon. This relationship could lead to the sale of the bank’s various products, including insurance.
Because Amazon would get a cut of each financial service transaction made on its platform, it may look to get other banks and financial institutions to sell their services online.
Amazon’s market strategy outside the US
According to Morgan Stanley Research, Amazon’s long-term top line is 2-3x more exposed to emerging markets than that of rival Alibaba. Amazon is aggressively entering emerging markets to expand, but also to pilot and take a deeper role in developing new financial services products.
These emerging markets are attractive because of rapid mobile internet adoption, a lack of legacy infrastructure, and a growing number of the population entering into the middle class. Three of the most notable markets where this is taking place today are India, Mexico, and South America.
Amazon financial services in India
Growing its presence in India is core to Amazon’s broader market strategy, and the company has reportedly invested $6.5B of the $7B it verbally committed to the country (up from a $5B commitment it laid out in 2016).
In January 2020, Amazon announced an additional investment of $1B into the country to help India-based SMBs sell online via its platform. Bezos said that he expected the retailing platform to export Indian goods worth $10B by 2025.
In June 2020, Amazon launched its Smart Store feature in India through its Pay arm. The feature allows small businesses to set up a digital storefront on the Amazon marketplace that customers can access by scanning a QR code. Customers can then make online payments through their Amazon wallet, credit and debit cards, or in monthly installments.
Amazon’s investments and M&A are concentrated in India
Amazon’s global fintech investments and acquisitions are light compared to the company’s broader portfolio bets. However, a majority of those it’s made have taken place in India, aligned with the company’s strategic desire to expand in the country, enable SMBs, and drive more marketplace sales.
Similar to its US strategy, Amazon is investing in enabling faster, frictionless payments to help boost marketplace sales — always a key focus for the e-commerce giant.
In Q1’16, Amazon acquired Emvantage Payments, which was quickly integrated into Amazon Pay and relaunched as a digital wallet in December 2016.
June 2018 marked the fifth anniversary of Amazon’s e-marketplace in India. To celebrate, Bezos wrote a letter to customers offering cash back of Rs 250 ($3) — to be paid into Amazon Pay wallets — for customers who shopped online for goods worth Rs 1,000 ($13). The move strategically pushed consumers toward Amazon Pay, which reported early losses of Rs 177 crore ($26.6M) on income of Rs 7.4 ($1.11M) crore for FY17. The losses surged to Rs 1,868 crore ($257M) on an income of Rs 1,370 crore ($189M) in FY20.
Some of that burn is the result of the fixed operating costs to set up the business, but is also money spent in promotional offers to acquire customers. Amazon has a firm belief that its customer lifetime value (LTV) exceeds its customer acquisition cost (CAC), which is why it continues to be competitive on price.
At the time, Amazon also announced it would inject more capital in its Indian digital payment business. In March 2021, Amazon Pay in India raised around $31M from the company’s subsidiaries in Mauritius and Singapore, bringing its total capital raised to more than $700M.
In addition to cash, the company is also launching new services and ramping up investments in startups.
In January 2018, Amazon Pay rolled out the Doorstep feature, a cash pickup service that allows customers to load money into their Amazon Pay digital payment wallets. Users can top up their balances using cash for digital services including food delivery, bill payment, and mobile recharges.
In Q3’16, Amazon also invested in prepaid gift card services company Qwikcilver. The gift card system has since been integrated into Amazon Pay and can be used as a form of payment on the Amazon India marketplace. In Q2’18, Qwikcilver partnered with Xiaomi’s Mi.com to offer electronic gift cards that redirect buyers to Amazon.
In May 2018, Amazon co-invested with Mastercard in an $8M Series B to ToneTag. ToneTag is a contactless payments hardware and software provider that can be integrated at both merchant (e.g. mobile, point of sale, card readers) and customer (e.g. mobile wallet, mobile banking apps) interaction points.
The ToneTag platform is now integrated into Amazon Pay, which expands Amazon’s reach to ToneTag’s reported 50M consumers (including merchants, parking garages, and restaurants) and 25,000 Retail Pods (the company’s hardware product that merchants use to accept payments) in India. This partnership will also expand Amazon Pay in India to offline commerce, a milestone that took the company over a decade in the US.
In August 2018, Amazon acquired Tapzo, an all-in-one mobile platform based in India that aggregates a variety of apps in one place. The move could allow Amazon to facilitate flight booking and other diverse transactions.
Further, this type of tool should help Amazon learn how to seamlessly integrate product and service offerings in one platform. Watch for lessons from this kind of all-in-one functionality to spread to other markets, including the Americas.
In April 2019, Amazon launched a peer-to-peer payments feature for Amazon Pay in India. This allows users to make payments to friends and family, in addition to using the digital wallet for making purchases online and in stores.
One of Amazon’s first equity investments in 2018 was a $22M Series C-II investment in Capital Float, a platform that provides working capital finance to SMBs in India. Following the investment, the company reported it had 80,000 customers across 300 cities, issued $170M in loans, and disbursed 10,000 loans on a monthly basis. In April 2020, Capital Float raised an additional $15M from existing investors including Amazon.
Capital Float has also expanded into point-of-sale financing for retailers, launched an online payments gateway for borrowers to repay loans, and started piloting alternative underwriting models.
This investment complements Amazon’s broader push to support SMBs. In 2017, Amazon partnered with the Bank of Baroda to provide loans to thousands of Amazon’s e-sellers to help suppliers expand their operations and finance inventory during seasonal spikes.
In June 2018, Amazon launched a new lending experiment in India, a marketplace for lenders and sellers to obtain a competitive loan. Amazon has already onboarded 5 lenders to the platform including portfolio company Capital Float, Capital First, Bank of Baroda, Aditya Birla Finance, and Yes Bank.
In April 2019, Amazon announced its first lending API integration with the lending platform FlexiLoans. With this partnership, Amazon sellers in India can get loans set up directly in their Amazon Seller Dashboard. FlexiLoans offers underbanked Amazon sellers funding and collateral-free loans, and processed 10,000 loans between 2016 and 2019.
On the consumer side, Amazon offers a credit card in partnership with ICICI Bank that provides 5% cash back on all Amazon purchases for Prime members and 3% cash back for non-Prime members.
In April 2020, Amazon launched its Amazon Pay Later service in India in partnership with Capital Float. Pay Later is an instant credit service that allows interest-free purchases on Amazon.in and bill payments of up to $800.
One of Amazon’s recent investments in India-based insurance was a $60M Series D in September 2020 to Acko, which brought the company’s valuation to $500M. The investment is a follow-on round from a $12M Series B investment in Q2’18, which Amazon also participated in.
Acko reports having 60M customers on its platform for B2C and B2B coverage, as well as third-party micro-insurance for ticket cancellation, ride-hailing, and driver protection. Ola, redBus, Zomato, UrbanClap, and Amazon are among the 15 companies that use Acko for coverage.
In 2019, Amazon received a license to start selling third-party insurance products in India. In addition, the company launched a feature to enable payments of insurance premiums in India through its Amazon Pay wallet, and has been pushing the car insurance product offered by Acko on its platform.
India presents a vast opportunity for Amazon to experiment with its insurance business. Overall insurance penetration in the country increased from just 2.7% to 3.7% between 2001 and 2019, meaning there are plenty of potential customers for the company. The overall value of the insurance market in India is estimated to be worth over $200B in the coming years.
From 2014 to 2020, Amazon invested $6.5B in India. But the company is yet to turn a profit and is facing a number of challenges. For one, long-standing rules in India allow foreign e-commerce players to act solely as marketplaces that connect buyers and sellers, so companies like Amazon or Walmart’s Flipkart can’t hold items and sell them on their platforms. These and other e-commerce players bypassed this rule by operating through joint ventures with local companies that acted as inventory-holding firms.
This loophole was closed in December 2018. Local authorities adopted new rules that prohibit foreign e-commerce companies from listing items of sellers in which they have an ownership stake. Amazon, Flipkart, and other foreign e-commerce businesses then had to delist thousands of items from their stores. They also had to make investments in sellers even more indirect.
India seems bent on tightening these rules further. At the beginning of 2021, the government started discussing new rules that would forbid foreign e-commerce firms from holding a stake in sellers through their parents. Amazon may especially be hit hard by this policy change. The retail giant has indirect equity stakes in 2 sellers that account for more than a third of its sales revenue in India.
Reliance Retail boasts a number of popular brands that compete with Amazon.
Amazon is also facing growing competitive pressure. Reliance Retail, a retail arm of India’s conglomerate Reliance Industries, has announced it would buy the retail chain Future Group. Amazon is trying to prevent this deal. The US retailer claims its ownership in one of Future Group’s firms gives its right to first refusal and has taken this case to court. Also, Reliance Retail and Reliance Industries-owned telecom giant Jio Platforms have secured the financial backing of Facebook and Google. Amazon thus urgently needs to acquire Future Group to fuel its growth amidst growing competition in India’s $200B e-commerce retail market.
Amazon financial services in Mexico
Amazon has quickly learned from expanding financial services in India and is looking to apply what it’s learned to other developing markets, notably Mexico.
Since March 2017, Amazon has launched Amazon Prime, Amazon Cash, and Amazon Cash debit cards in Mexico. All align with Amazon’s broader strategy of building a low-friction payments service to attract customers online and then providing shoppers an alternative to credit and debit cards to build loyalty.
Amazon Cash launched in Mexico in October 2017. Similar to the US model, it allows customers to reload their accounts through deposits (up to 10,000 pesos, or $444) at convenience store chains such as 7-Eleven and other merchants pictured below.
In March 2018, the company launched a debit card with partner Grupo Financiero Banorte, a Mexican bank, called Amazon Recargable (Rechargeable). Like Amazon Cash, customers can deposit cash on the debit card at convenience stores across the country.
Amazon’s financial services push is significant for Mexico because many customers are unbanked. This may give customers access to a debit card for the first time, as cash is the preferred payment method for approximately 90% of all purchases. These hurdles mean Mexico is an untapped opportunity for Amazon to convert offline purchases to online commerce.
In March 2019, Amazon was reported to be working on a mobile payment system in partnership with Mexico’s central bank. The system, also known as CoDi, allows people to use QR codes to pay for purchases made both on- and offline.
CoDi rolled out first as a small pilot that spring, with a complete rollout in October 2019 with 33 participating banks.
Amazon’s main retail business still lags behind that of competitor MercadoLibre in Mexico, so owning more of the country’s payments infrastructure could be a powerful lever for Amazon to use to catch up.
Amazon financial services in South America
Amazon is expanding its footprint across South America. The US giant is forming partnerships with payment processors, growing its distribution network, and expanding data center infrastructure. And although it still doesn’t offer its cards or insurance options in South America, Amazon is preparing the groundwork needed for such services.
Amazon partnered with fintech firm dLocal to enable Chilean customers to pay in pesos while shopping on Amazon. Shoppers can also pay in 3 monthly interest-free installments using Visa, American Express, and Mastercard credit cards issued by banks in Chile.
Customers in Colombia will have an equally seamless shopping experience. Amazon teamed up with payment solutions company EBANX to enable Colombian shoppers to pay for goods in local currency and using local payment methods. EBANX offers over 100 localized payment solutions in other countries, including Argentina, Peru, Bolivia, and Uruguay, and could help Amazon with regional expansion. And until now, shoppers in Chile or Colombia could only pay in local currency if they used Amazon PayCode as a checkout option.
Brazil remains the largest retail market in South America. But Amazon lags behind other e-commerce players such as MercadoLibre, B2W, and Magazine Luiza that dominate this market. To catch up with the competition, the company rolled out Prime Day in September 2020 for the first time, and also expanded its logistics hubs to offer Prime deliveries in 500 cities. In February 2020, the company also announced plans to invest $236M in Brazil’s cloud infrastructure.
Rumors: What will Amazon do next?
If there’s anything we’ve learned from Amazon, it’s to never say never. After the news broke that Amazon was looking to offer a checking account-like product, mentions of Amazon and banking crossed over 600+ media mentions. Although the company has since scrapped the idea, the media attention remains.
In that spirit, here are some of the noteworthy rumors in the wild:
Rumor: Amazon’s banking ambitions post-Bezos will grow.
Source: The Financial Brand
Why it’s interesting: Jeff Bezos has been a driving force behind many of Amazon’s key initiatives. It comes as no surprise that his transition to the role of executive chairman and the appointment of Andy Jassy as the new CEO raises lots of questions. For one, financial organizations wonder what Amazon’s future banking ambitions are.
Jim Marous, an expert on the digitalization of banking, says that “the decision by Bezos to step down from his current position will most likely only strengthen the commitment to financial services by Amazon.” Also, Jassy worked with Capital One, Stripe, Robinhood, and various other financial companies while leading AWS. And this experience may prove to be invaluable in helping Amazon innovate in the finance field.
Alyson Clarke, the principal analyst at Forrester, also points out that Amazon is likely to continue partnering with other financial institutions. She doesn’t think that “Amazon will — or needs to — get a license and become a bank. Any ambitions they have can be done via partnerships.”
Rumor: Amazon is building a digital currency
Why it’s interesting: Several job postings revealed that Amazon is assembling a team to work on a digital currency project in Mexico. One job posting noted that the product Amazon is about to build will “enable customers to convert their cash into digital currency” and then use that currency to shop for goods and services, including Prime Video.
Amazon’s Digital and Emerging Payments (DEP) division is in charge of this payment product. Another job posting said that the currency is geared toward emerging markets. It remains unclear what the value proposition of Amazon-owned currency is and whether it is blockchain-based.
Perhaps the currency could be used to send money abroad to friends and family to buy specific products from Amazon’s stores. Whatever the case, Amazon has once again shown its willingness to experiment with different technologies.
Rumor: Amazon is going deeper into the home
Source: July 2019, NY Times
Why it’s interesting: Amazon has previously worked with residential real estate brokerage Realogy to create TurnKey, a service to connect buyers and realtors on Amazon’s marketplace. However, the partnership between Amazon and Realogy was suspended in mid-2020 because of the Covid-19 pandemic. Realogy CEO Ryan Schneider said that “home services that require people being in someone’s home just doesn’t work in a Covid-kind of social distancing world.”
Nevertheless, Amazon is trying to wedge itself deeper into the home. By getting ahead of buyers as they start their search and incentivizing them with Amazon services, the company is aiming to create a massive cross-selling opportunity for its products.
It’s also a new way to grow distribution for its portfolio of home hardware devices such as Ring, smart devices like Alexa, and services like Amazon Home Services installation. The move could also help Amazon expand into home insurance or mortgage offerings.
Rumor: Amazon reportedly had discussions about offering home insurance
Source: June 2018, The Information
Why it’s interesting: This rumor is based on an anonymous source that reported Amazon had discussions about offering insurance in conjunction with its connected home devices. However, none of Amazon’s existing investments or products tie to home insurance, at least in the US. While the company has made insurtech investments in India (such as in Acko) and a partnership in the EU to offer Amazon Protect, acting as more than a distributor of existing home insurance products seems unlikely.
Rumor: Amazon is getting into mortgages
Source: March 2018, Housing Wire
Why it’s interesting: While Amazon has not made concrete plans, it has been making a series of strategic hires for lending with a focus on mortgage banking. The company hired a head of its newly formed mortgage lending division. In addition, the firm has a number of home services businesses such as Alexa, Prime streaming, and Amazon Fire Stick, and this could be its next move in owning the home.
Rumor: Amazon is getting into health insurance
Source: January 2018, Engadget
Why it’s interesting: Amazon has signaled that it is looking at healthcare seriously. In 2017, the company posted several internal job openings for a new stealth team called the “1492 squad,” relating to the use of medical records. It has also invested in cancer startup Grail, participating in the company’s $914M Series B in Q1’17, and has hired a healthcare and life sciences director away from Box.
Amazon also acquired Health Navigator, a startup that helps check symptoms and determine triage online, and added the features to its pilot of Amazon Care.
Rumor: Ripple is helping Amazon with cross border payments
Source: May 2018, CryptoDaily
Why it’s interesting: While cryptocurrencies saw a huge spike in interest in 2017, many of the world’s most prominent figures in financial services — including JPMorgan Chase CEO Jamie Dimon and Berkshire Hathaway CEO Warren Buffett — have outwardly cast it aside as mass speculation. Amazon is known to take unconventional approaches to solve customer pain points, so it would not be surprising if it were to explore applications of blockchain across financial services products.
Rumor: Amazon and PayPal are meeting with bank regulators to expand their financial services
Source: December 2017, American Banker
Why it’s interesting: Amazon and some other FAMGA (Facebook, Amazon, Microsoft, Google, Apple) members have been making headlines with rumors of moving deeper into financial services. Skeptics have punted back that the complexity of the regulatory landscape would inhibit them from entering the market. News that the firms are connecting with financial regulators suggests that regulations are not an inhibitor, but rather just an obstacle, and meeting with the Office of the Comptroller of the Currency (OCC) is one way to get the conversation going to overcome it.
Following this meeting, the OCC worked on a fintech charter for tech firms, including Amazon, which was supposed to include a centralized application that would give tech firms a limited (but universal) financial license vs. having to go state by state for approval. However, a federal court ruled in October 2019 that the OCC did not have the authority to issue such a charter. The OCC plans to appeal the decision.
Rumor: Amazon is buying Capital One
Source: February 2017, American Banker
Why it’s interesting: This rumor was one of the earliest that suggested Amazon would buy a bank. Amazon has a decent amount of cash on its balance sheet and could use that cash to buy a small regional bank. Capital One, in particular, is already operating on the AWS cloud and is looking to make further inroads into personal finance, so it could be a good combination.
Amazon’s strategy in financial services has been focused on supporting its core strategic goal: increasing participation (both from buyers and sellers) on its platform.
In practice, Amazon has relied much more heavily on internal product development than partnerships, M&A, or investments to broaden its financial services offerings. Relative to its FAMGA cousins (which have been much more active on the M&A and investment front), this is a surprising strategic decision. What’s not surprising is to see Amazon methodically seed, invest, and nurture a product line with a distant horizon in mind.
Zooming out a bit further, one can see the beginnings of what the Bank of Amazon could look like — a variety of key financial services products that support Amazon participants first, and enable them to buy, sell, and transact more easily than any other platform.
And that potential Bank of Amazon should worry traditional incumbents. If history provides a useful lesson, it’s that Amazon first builds core product pillars for itself, where it is the only and most important customer. This was most famously the case with AWS, which was the result of overhauling its own internal capacity for cloud services that were later repurposed for external clients and third parties. Only after years of building a product and iterating on features for itself does Amazon launch and expose a key product pillar to other customers.
When that point comes with finance, it will likely be too late for incumbents that have not yet responded.
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