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Amazon’s New Prime Reload Service Could Crimp Card Issuers in Two Ways
June 15, 2017

By Peter Lucas

With the launch of its Prime Reload rewards service, Amazon.com Inc. has positioned itself to deal a serious blow to bank card issuers’ revenues earned from interchange on Amazon.com purchases, and limit the visibility banks have into their cardholders’ behavior on the e-commerce giant’s Web site.

Image Credit: Amazon.com Inc.

Unveiled this week, Prime Reload is an enhancement to Amazon's rewards program that allows Amazon Prime members to earn 2% cash back on reloads for Amazon’s prepaid gift card usable on Amazon.com. Rewards are added to a Prime Rewards member’s account each time she reloads funds on the prepaid card through a debit card.

Where banks stand to lose money from Prime Reload is that once consumers load value onto the prepaid card, they will be more inclined to use it for purchases on Amazon.com, rather than a general-purpose credit or debit card. Hence, the card issuer only earns interchange on the reloading of funds, not the subsequent purchases the customer makes with her Prime Reload card.

And by offering Prime members a 2% reward on reloads, Amazon is creating an incentive for consumers to make Prime Reload their preferred payment card for Amazon.com purchases, says Richard Crone, principal at San Carlos, Calif.-based Crone Consulting LLC.

“Consumers loading funds onto Prime Reload can only spend those funds on Amazon.com, so they’ll spend them rather than use a credit card to make a purchase on Amazon,” Crone says. “Prime Reload has the potential to take away a substantial portion of transaction revenues from card issuers on Amazon purchases, because the money loaded onto the card becomes Amazon’s, not banks’.”

For Amazon.com, Prime Reload is a vehicle to encourage consumers to sign up for its Prime service. Amazon Prime, which costs $99 per year, includes free two-day shipping on more than 50 million items, free same-day delivery in select markets on more than 1 million items, and free two-hour delivery on daily essentials and groceries. Additional perks include video and music streaming, and free e-books.

While Amazon, which did not respond to a Digital Transactions News request for comment, holds the number of Prime members close to the vest, a recent report by Chicago-based Consumer Intelligence Research Partners LLC estimates membership in the United States at 80 million. On average, Prime members spend $1,300 per year, compared to about $700 per year for non-member customers, the CIRP report says.

In addition to crimping bank card issuers’ revenues on Amazon.com purchases, Prime Reload curtails the visibility banks have into their cardholders’ behavior on Amazon.com. An issuer will see data about the reloading of funds onto Prime Reload, not purchases the consumer makes using the card.

“Banks will lose visibility into a major source of e-commerce data as they won’t see what Prime Reload members are purchasing from Amazon, how often, etc.” says Cherian Abraham, digital payments and commerce executive at Experian Decision Analytics.

Prime Reload also is a vehicle for enhancing customer loyalty, because it rewards consumers for changing their payment behavior, payments experts say. Abraham doubts Prime Reload will cannibalize Amazon’s cobranded credit card, which offers 5% cash back on purchases at Amazon.com, since Prime Reload is more likely to appeal to consumers not in the market for an Amazon-branded credit card.

Crone expects that other retailers will be closely watching how Prime Reload fares because the potential opportunity to lower payment acceptance costs, deepen customer loyalty, and increase customer purchasing frequency are too attractive to pass up.

“We’ve worked on similar strategies with merchants, and the rewards pay for themselves through lower acceptance costs, increased loyalty, customer spend, and transaction velocity,” Crone says. “It’s a concept that can move the needle on payments in merchants’ favor.”

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