Amazon Targets PayPal Strategy in Forging Bank Partnerships

Amazon Targets PayPal Strategy in Forging Bank Partnerships

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Amazon wants to appeal to more cashless customers while trying to cut its transaction expenses, copying a strategy set by PayPal, according to Bloomberg.

The e-commerce giant is in talks with JPMorgan Chase, Capital One and other banks about creating new online accounts, according to two people familiar with the matter. The discussions mirror deals reached by PayPal, which sees more potential growth by aligning with banks and credit card companies rather than fighting them.

PayPal has demonstrated that people who frequently buy products and move funds online are willing to leave some of their money in PayPal accounts, particularly millennials without traditional bank accounts, because they are confident they will spend it later. Amazon is likely looking to compel customers to leave money from refunds and rewards program credits in similar Amazon accounts they can later spend on Amazon.

If customers use an Amazon account, rather than a credit card, it would reduce Amazon’s fees paid to credit card companies, banks and payment processors, which is typically 2.9 percent of each transaction. The company could save expense and regulatory red tape by creating partnerships with banks to create the accounts.

PayPal’s free peer-to-peer payment service Venmo, popular with millennials for splitting rent and restaurant tabs, has highlighted the potential for tech companies to provide new financial tools. Venmo processed $10.4 billion in payments in the fourth quarter, up 86 percent from a year earlier. PayPal is expanding the service so that it can be used with more than 2 million U.S. merchants who pay PayPal a fee for each transaction.

Last year, Amazon started Prime Reload, which gives customers a 2 percent bonus when they use their debit card to move funds from a bank account to an Amazon balance used for purchases on the website. The move helps Amazon pay less in fees to card networks such as Visa and Mastercard.

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