Amazon (NASDAQ: AMZN) wants to make it even easier to shop on its website.

The biggest hurdle Amazon has for customers shopping online is that those who don’t have credit or debit cards can’t buy anything on its site.

But the company wants to fix that.

On Monday, the Wall Street Journal reported that the e-commerce giant is in early talks with financial institutions to build a “checking account-like” product for its customers.

This move might be more because Amazon wants to reach new customers and not because it wants to disrupt the banking industry. Amazon wants to grab the part of the market that it’s been unintentionally ignoring because of its incorrect assumption that most households have credit cards or bank accounts connected to debit cards.

Analyst Justin Post wrote in a note to clients on Monday:

We think Amazon’s aim with expanding its financial offering is less about disrupting the financials sector and more about increasing engagement on its own marketplace. While there may be some ability for Amazon to reduce the fees it pays to banks and payment processors by creating a closed-loop prepaid debit card type of product, we think that Amazon’s primary motivation would be to attract younger and underbanked customers that otherwise would find it difficult to shop online.

More than a quarter of U.S. households have limited to no access to checking and savings accounts. They instead rely on cash and checks to make their purchases. Shopping online isn’t an option for these people…

Connecting the Unbanked

But these people do have access to the internet. They’re connected somehow — whether by a computer or smartphone.

So, they have access to Amazon’s app and website. And they’re able to browse the endless amount of products on Amazon’s site. But when it comes down to actually purchasing those items from the online marketplace, they can’t.

Morgan Stanley indicated that Amazon’s Prime subscriptions flattened in third-quarter 2017.

We could very well see this trend continuing even as more people join the Amazon bandwagon. All the people who feel that a Prime subscription will benefit them will already have it.

And growth will continue to remain flat unless Amazon can grab its customers who haven’t subscribed yet.

A survey by Piper Jaffray says that 82% of U.S. households with more than $112,000 in annual income are already Prime members. And the company’s reach is the lowest among households that make less than $41,000 a year.

A big reason why those households are holding back is because they don’t need the subscription. And why don’t they need it? Because they don’t have checking and savings accounts…

Then there are millennials. A huge portion of the generation is distrustful of banking institutions. Goldman Sachs reports that 33% of millennials say they don’t anticipate needing a bank account within the next five years…

It’s Never Too Late to Try

Amazon needs to take action now, so it can stay ahead of the competition.

It has to figure out a way to keep the millennials who decide to split with their banks as customers. And it needs to reach the customers who aren’t able to get checking accounts.

In the past, other companies attempted to do something similar to what Amazon is doing right now. T-Mobile tried to create a debit card-linked account with an accompanying smartphone app for its lower-income customers who didn’t have bank accounts.

Unfortunately for T-Mobile, the program didn’t go as planned. Two years later, it was dead because of a lack of interest in the program. There are a lot of factors that could explain why this type of program didn’t work for T-Mobile — like the lack of marketing and focus that the company gave the program as the years went on.

But I don’t see that happening with Amazon and what it might be planning to launch. The company is working with financial institutions like JPMorgan Chase to help launch successful checking account-like products.

Not only that, but Amazon also tends to be very successful at marketing and bundling its products. The company makes it convenient to use all its products cohesively. As a consumer, you’re constantly told how easy it is to have two Amazon products working together to give you what you want.

So, offering a checking account-like product will be a step in the right direction for Amazon.

Until next time,

Jennifer Clark
Pro Trader Today