The offline world still dominates ecommerce. While ecommerce saw 17% growth in 2017, it only accounted for $450B of $5.075T in total retail spend. Amazon happily dominates ecommerce of course, with roughly 50% market share
But they’re obviously missing a lot of opportunity in conventional retail.
Amazon has been slowly – and strategically – making inroads to brick and mortar. They purchased Whole Foods in 2017. They’ve been working on a grocery delivery service, Amazon Fresh, for over a decade. They’ve built restaurant online ordering and are working on last-mile logistics services. They’ve even gone so far as to think about becoming a bank.
Yet there might be an easier path for Amazon to take.
Amazon doesn’t really want to be in brick in mortar so much as it wants brick and mortar data. With data, Amazon can create new products that “delight customers” across a broad spectrum of industries. This grows its influence and appeases shareholders, allowing it to extend its proven ecommerce capabilities into recalcitrant markets.
Which leads at least one person to believe the more efficient way for Amazon to exert its dominance in brick and mortar is by launching a credit card.
Yes, a credit card. At least according to Jeff King, an industry consultant.
Merchants shell out 3% of every card purchase to the payments companies. These are a combination of issuing banks, acquiring banks, networks, and other middle men. That’s 3% right off the bottom line and for retailers that only command 5% profit margins that’s a lot of money.
The fastest way to convince these merchants to pay attention is to show them how that 3% disappears.
Per Jeff, Amazon could develop its own closed-loop credit card. By that we mean it could build its own payment rails, eliminating the credit card networks (Visa, Amex), the acquiring banks, and the processors. In essence Amazon would become its own issuing bank, supporting both the consumer and the merchant.
Amazon would certify its new rails with the major gateways and payment device manufacturers. Once certified, the devices in the field would be able to accept Amazon’s card with the latest software update, which can be done centrally without the need to convince each merchant to enroll. “That makes merchant distribution really easy,” says Jeff.
Amazon could then eliminate interchange at its own discretion, or charge substantially lower fees to merchants – maybe to the tune of 1%. “This would still be a roughly 66% discount relative to other cards. They would also be better able to control chargebacks and merchant risk which makes it enticing.”
On the consumer side of the equation Amazon already counts half of US households as Prime members. It would simply need to issue these patrons its new card, along with some nifty perks. What could those be?
Well, if Amazon is acting as the lender of credit, it can create a number of financial tools for consumers. “It can also offer rebates – maybe 3% or more – on Amazon purchases. Amazon racked up $200B in ecommerce sales last year; 3% is a measly $6B. Amazon is smart enough to figure out this value proposition.”
Once Amazon starts collecting data at scale it would be able to further undercut existing business and consumer service providers. Think about Amazon providing recommendations on what to sell and at what prices, with fulfillment through Amazon’s platforms. Or new site selection tools based upon its customer behavior and buying patterns: “People in this Zip code buy a lot of wheelbarrows but there is no wheelbarrow retailer.”
The opportunities in brick and mortar are endless (because the industry is so damn far behind). A credit card might be Amazon’s best approach to modernization an otherwise recalcitrant industry. “It’s what I would do if I were Amazon,” Jeff says. “It sure beats trying to get scale merchants another way.”
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