Will Amazon Cash Lead To A Real Benefit For Amazon?

In an attempt to woo the “unbanked” and “underbanked” population, Amazon (NASDAQ:AMZN) recently launched “Amazon Cash,” a payment method on its platform which does not require credit or debit cards. This payment method will allow customers to add cash to their Amazon account through participating stores where they can show a barcode generated by Amazon and add the necessary cash. While payment options such as gift cards and prepaid debit cards already exist to shop on Amazon without a credit card, Amazon Cash is a more streamlined and easier process for these transactions. Aimed at customers who do not have credit cards, this option could also appeal to customers who do not want to share their credit card details online. According to a 2015 FDIC report, 7% of American households (approximately 9 million households) were unbanked and an additional 20% (24.5 million) were underbanked. This segment is comprised substantially of lower-income households, so even if Amazon is able to get them on its platform via Amazon Cash it remains to be seen how much of an impact it would have on Amazon’s e-commerce volumes. We believe this initiative will allow Amazon to become more of an inclusive platform, with a multitude of payment options, but it may not have a significant impact on the company’s profitability.

Widening Appeal, But May Not Boost Volumes By Much

Amazon Cash appears to be an attempt to lure unbanked customers to spend on Amazon, and while these customers may not end up being big spenders on the platform, the effort can boost Amazon’s appeal at the very least. Customers who have shied away from the platform because they don’t own a credit card, or don’t want to use one online, will now be able to transact on the platform and make it even more ubiquitous in the U.S. Further, reports suggest that Amazon has offered promotional free Prime Memberships to some low income households and has increased its operations in lower income neighborhoods. Continued efforts to bring these households onto its platform could provide a slight boost to volumes, though the promotions would undoubtedly put pressure on margins.

In some emerging economies, Amazon offers “Cash on Delivery,” where customers can pay in cash once the product is delivered. This leads to higher costs, but is a popular payment method in many markets where much of the population either does not use credit cards or prefer not to. Extending Amazon Cash to these markets can make it cheaper for Amazon to serve countries where the banking system is still evolving.

To expand in the competitive U.S. market, several large companies are looking to capture the previously ignored unbanked and underbanked population. Amazon’s move to attract these customers can improve its perception as an “inclusive” platform, but we believe it is unlikely to have a significant impact on the company’s revenues and profitability in the near term.

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