Finextra Post:An opportunity to transform the credit card world

My Comment:

I thought Amazon already has a credit card for years?

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Okay, so you propose Amazon to become both a Credit Card Issuer (like JPMC, BarclayCard) and Credit Card Network (like Visa, MasterCard).

Credit Card Issuer: While Amazon has a near trillion dollar market cap and nearly 300 billion dollar revenue, it’s not exactly known for throwing out cash. According to an article I read a few years ago, Amazon is perpetually on a cashflow treadmill between when it receives money from its customers and when it pays its suppliers. Apparently, the company will go bust if it gets off the treadmill for just 60 days. Any idea how Amazon will find the huge amounts of money to lend for a credit card business?

Credit Card Network: So many companies have tried to create alternatives to credit card rails by using FPS and other A2A RTPs. In USA, UK and other markets where credit card is well established – which excludes emerging markets like China and India – I can’t recall a single one of these Alternative Payment Providers going mainstream. All of them provide compelling value proposition to Merchants but don’t provide any benefits to Customers, who, therefore, stay with Credit Card to continue to enjoy rewards, deferred payment and other advantages of credit card. Any idea what Amazon can do differently in order to succeed where so many other alternative payment providers have struggled?

Also relevant in this context is Amazon’s initiative to give loans to merchants on its platforms. There was a lot of brouhaha around 3 years ago when Amazon announced some numbers. As usual, many pundits predicted that Amazon will kill traditional lenders aka banks. Nothing like that has happened since then. At the time, Amazon had given just $3B loans in 6 years to 20K borrowers. If Amazon really has the money and the motivation to get into credit business, I guess it might find it easier to simply expand this existing merchant lending program than launch a new credit card program.

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Thanks. IMO, Amazon has higher chances of breaking through the Visa / MasterCard duopoly in the Western Word by creating another credit card network than by creating an alternative payment network based on bank account, etc. The former requires Amazon to be 10X better than Visa / MasterCard. The latter requires Amazon to be 10X*10X*10X better than credit card rails, as Stratechery highlights in this article. While the former is not easy, the latter has proven impossible despite the attempts made by so many companies over the last 10-odd years.

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There is no cost to deferred payment by credit card if you pay your full balance by the end of the month. I’ve been using credit cards for +30 years and have not paid a penny by way of interest. Credit Card also offers rewards, fraud protection and other benefits not offered by A2A payments.

I remember somebody questioning the future of credit card in UK on these very pages of Finextra almost 5-7 years ago. I don’t have the latest figures but I’m sure credit card volumes in UK are still higher than A2A volumes.

The thing is credit card is incumbent. It doesn’t need to have any need. Inertia and change resistance work to its advantage. These same things work to the disadvantage of A2A payment methods.

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Thinking big and reaching for the stars and all that are quite fine but it can’t be done with the budget of a bullock cart. Question is, does Amazon have the budget of a rocket i.e. enough surplus cashflow to do big time lending as Credit Card Issuer? I think not. But I’m open to be corrected.

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Amazon does not seem to have the budget of a rocket. Its Seller loans so far were made against credit facility from Bank of America and, more recently, Goldman Sachs / Marcus, according to Amazon and Goldman Sachs announced a partnership to provide lines of credit up to $1 million to merchants selling on the Amazon platform.