Amazon's debit rewards could shock the payments industry

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On the surface, Amazon's new loyalty cashback program, Amazon Prime Reload, appears to be just another benefit of enrollment in Amazon Prime, the $99 annual membership program that provides discounts and access to a range of goods and services.

However, a deeper dive into the workings of the program — which offers 2% cash back when shoppers use a debit card or bank account to load an Amazon stored-value account — should give the card payments industry serious cause for concern.

Prime's time

Since its launch in 2005, Amazon Prime has become the hub of the online retailer’s customer acquisition strategy. Amazon doesn’t share data on Prime membership, but current estimates place the program at around 80 million people globally.

It's an impressive number but one that is sure to plateau.

To continue growing, Amazon Prime needs to broaden its appeal to a wider audience, and its January move to offer better rewards to Amazon-branded credit cardholders doesn't come close to accomplishing this.

Newer programs like Amazon Cash, a service that allows cash loading to an Amazon account at participating retailers, have set the stage for the debit and ACH-focused Amazon Prime Reload. Both of those programs cater to consumers who prefer cash and debit over credit.

Another way Amazon is catering to the cash-based consumer is with its retail strategy. It has ambitions to become one of the top five U.S. grocery delivery providers by 2025 via AmazonFresh and AmazonFresh Pickup. Amazon Prime Reload is likely to be central to making this happen.

The nuts and bolts of Amazon Prime Reload

Exploring the inner workings of Amazon Prime Reload provides some revelations on Amazon’s plans for its latest service.

After enrolling a debit card and bank account (Amazon chooses which to use when processing reloads), the next step in the process is to load value to the shopper's Amazon Balance with a $100 load set as the default and emphasized in bold. The 2% cash back is not provided at the time of purchase, but at the time of reload.

Amazon is subtly guiding the end user to load at least $100 to the account for and to burn through this to earn rewards. Psychologically, it is also abstracting the funds from traditional payment media, presumably to make the value stored by Amazon “fun money,” rather than a value that is coming directly from the weekly budget. Its use of the phrase “Gift Card Balance” is somewhat telling — this money is a gift, it just happens to come from yourself.

The sky is falling. No, really.

The launch of Amazon Prime Reload will not be welcome news to card networks, issuers and traditional retailers.

The banks and card networks fought relentlessly with PayPal over the years against its use of a similar practice of using linked bank accounts to cut its own payment costs. Visa and its peers finally convinced PayPal to change its ways, but it seems now that this battle was fought on the wrong front.

If Amazon succeeds in convincing shoppers to use their Amazon Balance instead of a payment card, issuer revenues from Amazon will dip dramatically as the retailer shifts more reload volume to ACH.

But the softer implications may be more troubling longer term. Amazon Prime Reload effectively blocks brand recognition for networks and issuers in the Amazon ecosystem to visibility only at the point of reload. With the psychology of QSR gift card dynamics being used for reloading, it is plausible that Amazon will take this a step further and enable auto reload at a low balance threshold, effectively making the issuer and network entirely invisible.

Card networks and issuers will not only lose revenue and brand recognition, but will also lose transparency on consumer transaction behavior, shifting the balance of power in terms of customer data analytics back to Amazon.

Amazon's motivation

The reason to drive Amazon Prime adoption is simple — it improves the frequency of repeat business.

According to an RBC Capital report, 73% of Prime customers said they shopped at Amazon at least two to three times a month, while only 22% of non-Prime customers said they did. This difference in spending habit makes a Prime customer far more valuable to Amazon; according to a separate report by Consumer Intelligence Research Partners, Prime members spend an average of $1,300 per year on Amazon compared to $700 per year for a non-Prime member.

Further, the longer they've been a Prime member, the more they spend: Forty-one percent of those in the first year of a Prime membership spend over $800 a year, compared with 68% of Prime members of more than four years who do, according to the RBC Capital report.

Should Amazon Prime Reload be a success in attracting and retaining a broader demographic to shopping online for everyday goods such as groceries online, it could cement Amazon’s role as the retailer of choice for categories it hasn't traditionally controlled. None of this is good for the business models of banks and card networks.

What do you think? Senior Analyst Nick Holland welcomes your feedback in the comments below or at

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Retailers Loyalty and rewards Debit cards ACH Online payments Amazon