Why Amazon Is Checking Into ‘Checking’

Amazon.com Inc.’s interest in launching a checking-account-like product, reported last month by The Wall Street Journal, could have deep roots in its strategy both for payments in general and for Amazon Pay, the payment wallet it operates for non-Amazon sites, expert observers say.

Talks between the Seattle-based retailing colossus and banks are in the early stages, and it’s far from clear any sort of product will emerge from them. But sources told the Journal the account would be designed to appeal to younger consumers and would not entail Amazon applying to become a bank.

Instead, the company is reportedly requesting proposals from mega-banks like JPMorgan Chase & Co. and Capital One Financial Corp. to form a partnership to offer the product.

Amazon did not respond to a request for comment from Digital Transactions. Spokespeople for both Chase and Cap One said their institutions have no comment on the Journal story.

What Amazon is likely doing is exploring the idea of creating an account that could generate spending data the company could then use to shape and define marketing efforts, observers say.

“By being the provider of consumers’ checking accounts, Amazon can be in the middle of not just Amazon purchases, but also gain insight into where, when, and what consumers are buying elsewhere,” says Sarah Grotta, director of the debit and alternative products advisory service at Mercator Advisory Group, Maynard, Mass., in an email message.

The account could also work with Amazon Pay as a source of funds in much the same way the prepaid Starbucks account supports the coffee chain’s mobile-payments service, suggests Richard Crone, principal of Crone Consulting, San Carlos, Calif.

“‘Checking account’ is a misnomer. Nobody uses checks any more,” he says. “They could package this as a spending account and connect direct deposit. It’s shoring up the foundation for Amazon Pay.”

Amazon lately has been making efforts to bring Amazon Pay to physical locations in addition to online venues (“Primetime for Amazon Pay,” February). Early participants include TGI Fridays, where the wallet can be used at “select” locations of the restaurant chain, as well as other stores that use First Data Corp.’s Clover point-of-sale system. Amazon has also worked on making Amazon Pay operate with its Alexa voice-response technology.

The move to recruit a bank for a jointly offered account could also help Amazon by reducing transactions costs, some observers note. “Amazon’s scale means that card processing fees, particularly interchange, represent a very significant cost,” says Rick Oglesby, principal at AZ Payments Group, Mesa, Ariz, by email. “Anything Amazon can do to circumvent interchange will provide very large savings.”

But the accounts could produce revenue in addition to cutting acceptance costs. “Any funds that the consumers hold in their accounts and spend outside of Amazon can generate interchange income,” Oglesby says.

But behind it all, several experts note, is the drive for usable data about consumers’ spending habits. “By gathering this data and applying predictive analytics, Amazon can get in front of consumers’ next buying decision,” says Grotta. “This isn’t just about shoes and paper towels, but also big-ticket items like cars.”

Or, as Crone puts it, “Data is the new oil. Payment is the well.”