Amazon is everywhere.
The online retail giant has a massive cloud computing business, it recently acquired Whole Foods to give it a bricks-and-clicks presence and now, it’s considering making a leap into a banking partnership. Maybe it had to happen eventually.
Amazon’s Search for a Banking Partner
Amazon has been very clear in its intent when it comes to this new venture into banking: it isn’t looking to become a bank. It just wants to be bank-like. Last fall, Amazon put out a call for hybrid-type checking accounts from several major banks in the field. Now, it’s reviewing the finalists, which seem to be JP Morgan and Capital One. And just recently, the company announced that Amazon Prime members with Visa rewards cards will get 5% back when they use the cards at Whole Foods, with non-Prime customers getting 3% back.
No one is clear exactly what this Amazon-branded bank account will look like, maybe not even Amazon itself. Will it have checking accounts or an ATM network? It’s unclear at this point. But like so many of Amazon’s recent moves, what may feel a little half-baked right now could prove to be a genius financial move on the part of the Internet giant.
The Plan Behind the Plan
Offering a customer-side banking product is more than a cute move to attract more attention or a convenience for loyal Amazon lovers.
It’s a really clever way for the company to save an enormous amount of money over the long-term. Imagine if Amazon were to convince frequent flyers to use their Amazon checking account to make all their purchases, the retailer would save the transaction fees on each and every one of those purchases by keeping the payment processing in-house.
Because banking is a highly regulated sector, however, Amazon has to tread carefully. That’s likely the main motivation behind seeking a partnership with an established and well-respected bank like JP Morgan or Capital One. This year is going to be one of visible diversification for Amazon, it would seem, as they continue to work toward a massive health care plan for employees, remake the grocery store experience with cashier-free markets and, apparently, make it even easier to spend an entire paycheck on its website.