We read this interesting article about Amazon creating a ” Bank of Amazon “.

Here is our take on it.

Amazon has 80m+ Prime members, rising.

Amazon gets 50% of revenue from 3rd party resellers.

Amazon and the  3rd party resellers all pay the Visa/MC interchange fee “tax”

Visa/MC can only keep charging this tax because of their lock on the marketplace, “all” the credit and debit cards run on their rails.

Who is big enough to take the short term hit to break that lock? – Amazon.

“Buy with the Amazon card and get a 2% cash back on all your Prime purchases”  – or this averaged up to 5% or more with Amazon giveaways, e.g. Discount on Prime, cheaper Echo, Dot, discounts on Amazon own label.

Amazon will take the hit for as long as it needs. It works on 7 year ROI terms. (“If you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.” Bezos.)

And  Amazon  will have an army of 3rd party resellers working for them as foot soldiers , “Pay me with the Amazon card for all my other stuff I don’t sell via Amazon and get a 2% discount , (partly funded by Amazon), because I won’t have to pay the hated Visa/MC interchange tax.”

A bank of Amazon could wage a war of attrition on Visa/MC for 7 years. The markets won’t mind, they funded Amazon for a decade when it wasn’t making money.

The rough size of the prize would be at least the market caps of Visa and MC.  ($460bn). And this isn’t even thinking about emerging markets that Visa/MC do not serve. And where “interchange free” payments are gigantic.

For restaurants this will mean cheaper credit card processing, but it will also mean the arrival of the Amazon. Whether this means swapping the frying pan of Visa/MC for the fire of a very, very smart player remains to be seen.



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