Imagine for a moment that Amazon, the third most valuable company in the world (US$750b), decided to make a credit card for the Australian market. Would you be excited to get a credit card from the “everything store”?
We don’t have any insider knowledge to say if Amazon will launch a credit card in Australia. And all of what follows is theoretical, and if a card was launched it could be very different than the proposed cards in this piece. Let's wait and see.
In a previous blog post we imagined if tech giant Apple made a credit card. Since the invention of the credit card, the speed of change has been mostly glacial and the competitive market has largely stagnated. The core credit card product offered by one bank is, at best, only marginally different to that of any other bank.
There are undoubtedly important points of differentiation (interest rates, fees, rewards programs, insurances, internet banking, customer service etc.), but all in all, over the decades, change has been evolutionary, not revolutionary. Amazon could innovate and disrupt.
What would Amazon offer?
Amazon might consider creating a credit card for use in Australia to bolster its e-commerce play. Once it takes a chunk of Australia's $23 billion e-commerce market, adding a credit card wouldn’t be a massive stretch. Unlike Apple, Google, Microsoft or other tech giants, Amazon does actually offer its own credit cards in the UK and the US. Amazon would likely offer consumers in Australia something similar to what they have been running credit cards in the US and UK for years.
In January 2017, Amazon released its latest credit card in the US, the Amazon Prime Rewards Visa Signature card, which was designed to reward Amazon customers, grocery shoppers and people who do some air travel.
Described by Nerdwallet as a "must-have for Amazon Prime members", customers are incentivised heavily to shop with Amazon with cash back rewards:
- $50 gift card as the signup bonus
- 3 percent back at Amazon.com and Whole Foods Market
- 2 percent back at restaurants, petrol stations and drugstores (pharmacies)
- 1 percent on all other purchases
- No annual fee
- No foreign transaction fees
- Complimentary travel insurances
- Other purchase protections
- Earn Amazon Points on spending that can be redeemed against your shopping cart total
If Amazon was to offer similar rewards to its Australian customer, it might be hard to beat, and could likely attract a host of savvy spenders.
What this might mean in Australia is that if Amazon did launch a credit card at a similar rate, there likely wouldn’t be an annual fee, and depending on the rewards scheme, the APR would likely fall between 16 to 20 percent.
The rewards scheme is driven by customer spending, and we at Credit Card Compare, know that there's plenty of room for competition in the cashback sector.
Before we get too excited
Anticipated as a game-changing event, at 1am, on December 5, 2017, after weeks of speculation and pushed-back launch dates, Amazon opened its operations in Australia very quietly, with more smoke than fire. There was no major media event, no announcement, no fanfare pushing the online retail giant into all of our lives and homes.
To be frank, the launch was soft. Very soft. Physical stores and online retailers have had a stay of execution...for now. Despite the less than impressive launch, and somewhat slower than predicted uptake in Australia, Amazon is still a very powerful player in the global retail market.
In the USA, estimates demonstrate that in 2017, Amazon made up 44 percent of total e-commerce sales, which equated to around 4 percent of the total national retail sales figure, while future predictions suggest the internet giant will have 50 percent of the online US market by 2021.
Let’s face facts, right now, the Australian online retail market is small. The latest ABS data suggests that in 2017, Australians spent an estimated $23.4 billion on online retail, which only equates to around 7.6 percent of the traditional retail sector (August 2017 – Australian Bureau of Statistics).
However, it is a fast-growing market, and we’ve seen brands like Amazon and Alibaba arrive on our shores, working to claim their spot in the market. The latest online retail sales index report from NAB suggests that the online market in Australia is growing by 6 percent year on year.
Why would Amazon do it?
Alibaba CEO Jack Ma describes Amazon as an "empire" where Amazon controls the whole value chain compared to his "ecosystem" model. By launching a credit card product, the non-financial organisation would be in keeping with their "empire" approach.
It would be disruptive and would require some innovation. It would further embed themselves into the lives of their customers. Amazon is no stranger to finding inventive ways to invade entire industries. Why not finance in Australia? Speaking about his brand, Founder & CEO, Jeff Bezos focuses on innovation and invention in order to move his company forward.
Banks have to go outside of their organisations to partner with innovative tech companies such as Apple, Samsung, Android and Garmin to do the novel things that impress customers. As tech innovation leaders Amazon relentlessly apply their inventive approach to technology to create products such as Alexa. These are the shiny tech objects that banks are eager to co-opt into their product experience. It is native to Amazon.
Naturally, we'd expect an Amazon Credit Card to seamlessly work with your Alexa to replace the bulk of Internet Banking visits or app usage. Calling a customer service number to speak to a human might only happen on rare occasions. Perhaps never at all.
Imagine saying to your Alexa:
- “Alexa, how much do I owe on my card right now?”
- “Alexa, what was that weird charge on my card?”
- “Alexa, pay my credit card bill.”
- “Alexa, how many Amazon Points do I have right now?”.
We like credit cards
Chances are that you have a credit card. As of February 2018, there were 16,580,989 credit cards in Australia. National spending using credit cards is estimated to be at $25 billion per month.
That’s a whole lot of plastic, or in the eyes of a credit card provider, like Amazon, a whole lot of opportunity. These numbers indicate that Australians like credit cards, and we are aren't afraid of spending on them.
If Amazon were to offer a credit card that featured an unlimited discount rate, similar to the US, it would be hard for the card not to garner a customer base. There’s enough churn in the market.
Other non-banking institutions have successfully launched credit cards in Australia, so Amazon wouldn’t be alone in this. Wesfarmers owned Coles first partnered with GE Money on its three credit cards, switching to partner with Citi in 2018. Supermarket rival Woolworths have had their own credit cards since 2008. In 2017 we’ve witnessed Qantas Money release two of their own airline-branded cards, again in partnership with Citi.
Who would Amazon partner with?
Our money would be on Citi. Why? It comes down to a Citi-Amazon collaboration announced in July 2017, in which cardholders of Citi Australia could use Citi Rewards points to pay for (or at least partially pay for) items purchased on Amazon.com (US website). Simply put, the partnership already exists globally between Amazon and Citi, so this makes complete sense for Amazon to deepen that arrangement.
One thing that might hinder a partnership with Citi however, is Coles. The Amazon card would directly compete with the three Coles credit cards. If for example, Amazon provided the exact same rewards as it does in the States, why would a loyal Amazon shopper choose to shop with Coles, when you could save more money by getting your groceries online through Amazon? Until Amazon (AU website) begins selling food & groceries it's a moot point, but, one that we can all foresee happening.
Healthy competition never hurt anyone, right?
Competition would be a major factor on Amazon entering the credit card market in Australia, and we know that if the retail giant did want to enter Australia with a card, the Big 4 banks, along with a host of other smaller players would certainly have something to say about this.
A new Amazon card would attract real interest from customers in Australia, and if marketed correctly, with a real launch, an Amazon credit card could really shake the whole market up. It would push other credit card providers to become more creative with their rewards which would very likely benefit Aussie consumers.
As mentioned, Amazon didn’t do very well with its Australian launch, so if it is to launch a credit card in Australia, it would really have to develop a strong launch strategy.
Potential new way to get an Amazon Credit Card
Some of the banks are already thinking of new ways to onboard customers.
"We know, at some point, cards are going to go away, and it's just going to be digital wallets, digital payments." says Citigroup CEO Michael Corbat.
He went on to say, "The piece of plastic is going away, and so how do we make sure that we embed ourselves in whatever the wallet of the future is?"
We imagine that a future-looking Amazon credit card would adopt the latest onboarding techniques from advanced credit card markets such as China, Hong Kong and Singapore.
How cool would this be? The customer starts their journey on a comparison site (Credit Card Compare, naturally), applies online and gets an approval decision within 60 seconds. Then subject to a confirmation email or verification code sent to your smartphone your new card will be loaded into your digital wallet (Apple Pay or Samsung Pay) ready to be used. Your physical card will arrive in the mail a few days later ready for conventional use.
Will Amazon launch cards?
I think Australian consumers would welcome an Amazon credit card. However, at this stage, we won’t be holding our breath for anything in the near future. Watch this space.