From payments to lending to insurance to checking accounts, Amazon is attacking financial services from every angle without applying to be a conventional bank. In this report, we break down what it's doing to support merchants and consumers, from cashierless payment terminals to health insurance for sellers in India.

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In 2017, Andreessen Horowitz general partner Alex Rampell said that of all the tech giants that could make a major move in financial services,

“Amazon is the most formidable. If Amazon can get you lower-debt payments or give you a bank account, you’ll buy more stuff on Amazon.”

While the anticipation for Amazon’s plunge into banking builds each year, it’s important to first understand Amazon’s existing strategy in financial services — what Amazon has launched and built, where the company is investing, and what recent products tell us about Amazon’s future ambitions.

Based on our findings, it’s hard to claim that Amazon is building the next-generation bank. But it’s clear that the company remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem.

As a result, the company has built and launched tools that aim to:

Increase the number of merchants on Amazon, and enable each merchant to sell more. Increase the number of customers on Amazon, and enable each customer to spend more. Reduce any buying/selling friction.

In parallel, Amazon has made several fintech investments, mostly focused on international markets (India and Mexico, among others), where partners can help serve Amazon’s core strategic goal.

In aggregate, these product development and investment decisions reveal that Amazon isn’t building a traditional bank that serves everyone. Instead, Amazon has taken the core components of a modern banking experience and tweaked them to suit Amazon customers (both merchants and consumers).

In a sense, Amazon is building a bank for itself — and that may be an even more compelling development than the company launching a deposit-holding bank.

This report is a collection of everything we know about Amazon’s foray into banking, financial services, and fintech. We will be updating this brief on an ongoing basis as more relevant data, investments, news, and products are released.

Table of Contents:

2. Market strategy outside the US

3. Rumors: What will Amazon do next?

4. Closing thoughts

Product strategy: Amazon takes on financial services

Amazon is notorious for spreading its bets before going all in on a new product, and the financial services space is no exception. Through trial and error, the company has set up key financial pillars across payments, cash deposits, and lending. As we’ll explore below, all are related to Amazon’s broader growth and product strategies.

Amazon Payments

Amazon has aggressively invested in payments infrastructure and services over the last few years. That’s unsurprising, given that the payments experience is so close to Amazon’s core e-commerce business. Making payments more cash-efficient for Amazon and frictionless for customers is a key priority.

Today, Amazon Pay has evolved to include a digital wallet for customers and a payments network for both online and brick-and-mortar merchants. Since 2019, Amazon has invested in growing Amazon Pay’s marketplace, including forming a partnership with acquiring bank Worldpay.

While Amazon Pay is the company’s latest iteration on payments, Amazon has experimented with payments functionality for over a decade. Below is a timeline of some of the major Amazon Pay milestones:

Amazon’s first known payments product, Pay with Amazon, launched in 2007. That same year, the company acquired TextPayMe, a peer-to-peer (P2P) mobile service that was re-launched as Amazon Webpay in 2011.

Webpay failed to gain user traction and was shut down in 2014, unlike up-start Venmo (now a part of rival payments processor PayPal). It’s likely that Amazon was too early to P2P payments.

In 2007, the company also invested in Bill Me Later (fka I4 Commerce). Bill Me Later was one of the earliest fintech payment platforms on the market and gave big retailers the ability to offer flexible financing programs. Although Bill Me Later was scooped up by PayPal in 2008, Amazon remained ever focused on reducing payment friction for customers.

Over the last few years, Amazon has used a variety of techniques to strengthen its payments experience, including launching digital wallets through Amazon Pay, acquiring tech talent of failed mobile payments startup GoPago, building a variety of tech in-house, and most recently opening up to partnering with merchant acquirers outside of Amazon’s marketplace.

Today’s iteration is Amazon Pay, a digital wallet for customers and a payments network for both online and brick-and-mortar merchants and shoppers.

Traction/metrics:

In addition to serving Amazon’s core customers, payments is an attractive revenue line when thinking about the scope of the payments market. Swipe fees alone are a $90B-a-year business for banks, card networks like Visa, and payment processors like Stripe.

Amazon is finding ways to attract merchants to the Amazon Pay network beyond its experimentation with swipe fees. The company announced it would pass on the special card savings Amazon gets from card networks (because of the volume of purchases they can guarantee) to retailers that adopt Amazon Pay. Leveraging scale and competing on fees is a classic customer acquisition strategy in Amazon’s playbook.

And while the company is famously secretive about reporting customer growth and business metrics, it reported that Amazon Pay had 300M customers in 170 countries through Q1’17. Payments made with Amazon Pay spiked following service expansion to new geographies — France, Italy, and Spain — and to new verticals, including government payments, travel, insurance, entertainment, and charitable donations.

However, Amazon has had some missteps with Amazon Pay. Its most famous failure was Amazon Local Register. With the talent acquired from GoPago, Amazon launched Amazon Local Register, a card reader for small- and medium-sized businesses (SMBs) in August 2014. At the time, the company charged competitive rates (a full percentage point less than Square). Each reader cost $10, and it seemed like a formidable rival to PayPal’s and Square’s readers.

But in October 2015, the company announced it would be shut down. Despite charging lower fees, the company failed to gain enough traction with merchants who feared giving Amazon detailed data on their overall business operations.

Eventually, Amazon launched a “Pay with Amazon” button for mobile and created a team with the goal of expanding payments across the web and on apps.

To lead this team, Amazon hired ex-PayPal employee Patrick Gauthier. In reference to failed payments projects, Gauthier said:

“What people never realize or truly understand about Amazon is that part of the recipe for success is daring to try things you have no idea whether will succeed or not, and if you think that you have a notion of how to succeed … you try again.”

Future developments:

Off-marketplace integrations: Pivoting from e-commerce to omnichannel enablement

In March 2019, Amazon announced an integration with Worldpay, which serves as a back-end intermediary between banks and credit card companies and is one of the largest payment processors in the world.

It is a notable pivot from Amazon’s IP strategy, where the playbook has been to build, patent, and keep proprietary technology in-house to fuel Amazon’s marketplace. However, keeping Amazon’s customer-centric “day one” philosophy in mind, Amazon Pay’s top priority is reducing payment friction for customers to buy goods and services and for merchants to sell more things. This is also a second attempt to build distribution with merchants, picking up where Amazon Local Register failed to gained trust.

To achieve this, Amazon Pay set up a rare independent domain and is expanding from e-commerce to omnichannel — across web, mobile, and IoT devices.

What could it mean for Amazon?

The partnership is significant because of its potential to put Amazon’s Quick Payment button in front of millions of consumers and boost distribution with merchants.

At the time of the deal, Worldpay processed more than 40B transactions worth about $1.7T annually, supporting more than 300 payment types across 120 currencies. In July 2019, FIS announced it was acquiring Worldpay in a $43B cash-and-stock deal, indicating a strategic move to grow its merchant solutions business. Patrick Gauthier, VP of Amazon Pay, was reserved about the implications of the partnership:

“Today the announcement is about the extension of our footprint. It will lead us into more opportunities to grow the value proposition for buyers and merchants, but I will reserve discussion about that for the future.”

For Amazon, the combination of FIS and WorldPay is aligned with the company’s goal of reducing friction in payments for consumers and merchants, subsequently boosting commerce.

FIS could also be valuable for financial services pursuits as its suite of technologies ranges from POS systems to integrated card payments to cross-border payments, and covers both online and offline commerce. FIS is also one of the biggest providers of core banking processing and has integrations with Q2 technologies. Both are key elements that non-bank-chartered tech firms in the US have been leveraging to launch banking services, like checking and savings accounts.

Why now?

Commerce has expanded well beyond desktop into mobile apps, IoT devices such as smart speakers, and other channels where Amazon does not have as formidable a position.

On the web, the infamous one-click patent helped boost the company’s payments prowess. But when the patent expired in 2017, it opened up the market for competitors to launch off-marketplace payment solutions.

To compete, Amazon is investing in its products, including by hiring product managers for device solutions. This could help Alexa move from the home and office into brick-and-mortar or point-of-sale (POS) environments.

Further, Amazon recognizes the need to diversify its dependence on third parties for its marketplace, even if that means enabling them off-platform.

While a short-term goal of the partnership seems to be to capture market share and reduce the processing fees charged by incumbents, in the long run, Amazon may look to close the loop and keep customers within the Amazon ecosystem.

Amazon Go: Amazon’s secret payments weapon?

Developing its products remains an area of strength for Amazon, especially as it iterates on its in-house biometric payments technology piloted within its expansive Amazon Go grocery stores.

Its Just Walk Out technology uses computer vision, sensor fusion, and advanced machine learning to enable a frictionless payments experience, and is based on technology that the company has patented in the past.

Just Walk Out is available through the Amazon app. It grants access to the store and allows customers to grab products and go without needing to stop and check out to pay.

Today, more than 25 Amazon Go stores are live in Seattle, New York, San Francisco, and Chicago.

The average annual sales of an Amazon Go location come in at about $1.5M, according to RBC Capital Markets. And with as many as 3,000 Amazon Go locations slated to open in the coming years, Amazon Go could become a $4.5B business.

Again, while the company typically does not make its proprietary technology available commercially, it looks to be taking a different approach with Amazon Go.

In March 2020, Amazon said that it had partnered with OTG to deploy its cashierless technology at CIBO Express stores at airports. The retail giant is reportedly in talks for a similar deal with Cineworld’s Regal Cinemas, a theater chain with more than 560 screens in the US.

Amazon could also look to integrate this tech into its Whole Foods stores or rumored independent grocery business in the future.

Prime Day: Amazon’s plan to adjust payment habits

Amazon Pay is still a niche payment method despite the company’s dominance in US e-commerce. This underscores the difficulty of influencing consumer behavior — especially when it comes to payments.

Alongside inventive products like Amazon Go, Amazon is using large-scale sale events like Prime Day to nudge people to use Amazon Pay.

During Prime Day 2019, Amazon offered consumers up to 30% cash back on purchases if they checked out using Amazon Pay. Customers received Amazon gift cards after using Amazon Pay at checkout from a specific list of participating merchants.

Incentives were offered on more than 30 retailers, including Brooklinen and Vineyard Vines. Offering cash back on an even wider variety of retailers could make sales a powerful technique for Amazon to encourage using Pay in the future.

Payments with a wave of the hand: Amazon’s plan to link payments data with biometrics

Alongside its cashierless store plans, Amazon has its eyes on eliminating the need for physical credit and debit cards altogether. The company is reportedly working on developing payments terminals that would enable shoppers to pay with a wave of their hands. Unlike its owned Amazon Go storefronts, these terminals could be placed in any brick-and-mortar location, such as a coffee shop or restaurant.

While the company has not publicly confirmed that it’s working on such technology, it has filed a patent for a “non-contact biometric identification system,” which points to its ambitions in the area.

The system would work by linking a customer’s biometric information (e.g. the size and shape of their hand) with their credit or debit cards. Shoppers would then be able to just wave at the payments terminal and pay for their purchase. Amazon is reportedly testing this system at vending machines in some of its offices in partnership with Visa. It’s also in talks with Mastercard, J.P. Morgan Chase, and Wells Fargo.

Alexa, pay for gas: Payments through voice commands

Amazon Pay VP Patrick Gauthier believes that, like e-commerce and mobile commerce before it, voice commerce has massive potential. The global voice shopping market is poised to grow from $2B to $40B by 2022, according to CB Insights’ Industry Analyst Consensus.

In January 2020, Amazon said that customers would be able to pay for gas at over 11,500 Exxon and Mobil gas stations across the US with a voice command to their Alexa-enabled vehicles or other mobility devices. The feature is expected to be available by the end of the year, and all transactions will be processed through Amazon Pay.

Amazon has partnered with Fiserv, a financial services tech company, which will enable the pumps to be activated at the voice command and ensure the payment goes through securely.

The retail giant also offers Alexa-enabled shopping for Atom Tickets, a Santa Monica, California-based company that allows users to purchase movie tickets prior to going to the theater. Shoppers can also pay their utility bills through Amazon Pay by sending out a voice command to their Alexa-enabled devices.

While Amazon has not yet announced any other applications of its voice command-based shopping features, a survey it conducted in 2019 showed that 44% of its customers were likely to try voice commerce over the next 3 years.

Amazon Cash

The Amazon Cash program bridges the gap between online commerce (using debit or credit cards as payment) and offline commerce, which relies on “cash on delivery” options like cash and gift cards.

Amazon Cash launched in April 2017 to allow customers to deposit cash, without a fee, to a digital account by showing a bar code (either printed physically or digitally) or their phone number linked with their Amazon account at a partner brick-and-mortar retailer, such as CVS or 7-Eleven.

Amazon Cash fits neatly into Amazon’s strategy of appealing to underbanked and unbanked populations — customers only need access to the internet and a printer to open an account, rather than requiring a bank account or a phone.

Prior to Amazon Cash, unbanked and underbanked populations were an unaddressed customer base for the online retailer, as discussed in the Traction section below.

Since Amazon Cash’s launch, Amazon has made a few key product developments:

In May 2018, Amazon Cash extended its partnership with Coinstar to allow customers to deposit spare change at Coinstar kiosks and cash out digitally with the Amazon Cash app, instead of in cash or physical gift cards.

Coinstar has nearly 20,000 kiosk locations across mass merchants and select financial institutions. The goal at launch was to enable 5,000 kiosks with the new service by the end of 2018, with Amazon looking to roll out services to more kiosks down the road.

The location of kiosks — typically in grocery stores — is a newer cornerstone of Amazon’s business following its acquisition of Whole Foods. They are also found in high-traffic areas that Amazon competes with, including rival retailers such as Walmart. This partnership helps Amazon encourage customers to spend more on Amazon.com, and fits Amazon’s core strategic goals of strengthening the Amazon ecosystem and increasing participation.

PayCode: Bringing Amazon offline with Western Union’s network

A more recent pillar in Amazon’s fintech strategy is bringing parts of the world without the infrastructure to support digital payments into the Amazon ecosystem.

With PayCode, Amazon is allowing consumers that haven’t previously been able to purchase goods on Amazon to buy items through the site and pay for them in cash via QR codes. Amazon piloted PayCode in countries including Colombia, Chile, Hong Kong, Kenya, Indonesia, Malaysia, the Philippines, Peru, Taiwan, and Thailand. It then expanded the program to Barbados, Costa Rica, Jamaica, Kazakstan, and Uruguay, before opening it to the US in September 2019.

The program is a partnership with Western Union, which is providing Amazon with the financial infrastructure it needs to enable offline cash payments. In these regions, consumers can pay for Amazon purchases by visiting a Western Union location and making a deposit in cash.

PayCode gives Amazon a strategic way of assessing which markets might make the most sense for future expansion of Amazon’s core retail platform, which is currently live in 17 countries.

PayCode could also represent a way for Amazon to eventually expand its influence among the underbanked in countries where it already has a live retail market.

Amazon Allowance: A kid-friendly solution

In addition to targeting the unbanked and underbanked, Amazon has looked to leverage the Amazon Cash feature to tap into the next generation of consumers.

In mid-2015, the company added Amazon Allowance, which was later brought under the Amazon Cash umbrella. Using Amazon Allowance, and with parental consent, kids were able to set up their own Amazon accounts and make purchases using their Amazon Allowance. Parents could allocate recurring funds to their child’s account and get the added control of overseeing what their kids purchased. However, the company discontinued this feature in July 2020.

Amazon has also made investments in improving kids’ access to the platform.

In December 2017, Amazon’s Alexa Fund participated in a $16M Series A to Greenlight Financial, an alternative debit card issuer aimed at young consumers. With the card, parents can manage spending limits and allocate funds for their children through a mobile app. In March 2018, Greenlight Financial announced crossing 100,000 customers, growing its customer base 300% since the investment. In August 2019, Greenlight raised a $54M Series B from investors including Wells Fargo, J.P. Morgan Chase, Drive Capital, Relay Ventures, and TTV Capital.

Greenlight Financial’s core business is complementary with Amazon’s internal initiative of growing Amazon Cash customers by increasing penetration of younger shoppers.

Traction/metrics:

Amazon hasn’t announced how many customers are using Amazon Cash, but it’s clear the market opportunity is large. A 2017 FDIC National Survey of Unbanked and Underbanked Households shows:

Approximately 6.5% or 8.4M US households, composed of 14.1M adults and 6.4M children, were unbanked in 2017.

Approximately 24.2M US households, composed of 48.9M adults and 15.4M children, were underbanked in 2017.

The international opportunity is large, too — for example, 190M citizens in India are unbanked and just 37% of adults have a bank account in Mexico. Amazon Cash could be an enabler for customer acquisition in markets that have high unbanked populations and entrenched local competitors, supporting Amazon’s goal of increasing the number of customers that transact on the Amazon platform.

Future developments:

Amazon is no stranger to looking outside its existing channels for growth opportunities.

The company could continue to expand the Amazon Cash and PayCode programs to other partners with high foot traffic (for example malls, colleges, grocers, etc.) or other geographies with highly underbanked populations and where QR codes are gaining traction as a payment method. Amazon could also leverage Whole Foods to launch more Coinstar kiosks, expanding the reach of the Coinstar partnership in a unique way.

Amazon Lending

Jeff Bezos has been more forward about Amazon’s desire to build out its lending arm than other financial service offerings.

In his 2016 annual letter to shareholders, Bezos outlined Amazon’s goal of expanding Amazon Lending: By continuing to work with partner banks to manage the bulk of the credit, the retailer can mitigate credit risk and calm investor nerves.

Today, Amazon’s business lending is available in the US, UK, Germany, Canada, China, France, India, Italy, and Spain.

Amazon also offers consumer lending in the US in the form of partner cards.

SMB lending

Amazon Lending initially launched in 2011 to help small businesses finance and sell more goods on Amazon. In 2018, Amazon Lending partnered with Bank of America Merrill Lynch to issue loans on an invitation-only basis that could range between $1,000 to $750,000. In 2020, Amazon inked similar partnerships with Goldman Sachs in the US and ING in Germany.

As part of its deal with Goldman Sachs’ Marcus brand, the bank will invite selected merchants to apply for a credit line of up to $1M.

This is the first time that Amazon will open up its treasure trove of sales data on its sellers to a third-party financial institution to make underwriting decisions.

In Germany, Amazon and ING will provide loans between €10,000-€750,000 ($11,250-$852,327) to SMBs.

From launch in 2011 to Q1’19, Amazon reported it issued $5B across more than 20,000 business in the US, Japan, and the UK.

Amazon’s lending business growth may be slowing, as it grew only 4.7% in 2017 and 2.6% in 2018, according to the Financial Times. However, this may be because the company is limited on how much capital it can lend without raising bank debt, or it may be a strategic decision to keep a cap on growth to avoid regulatory pushback.

In October 2018, Amazon expanded beyond loans to corporate cards issued by American Express in an effort to build its Amazon Business suite and attract new businesses to the marketplace. Launched in 2015, Amazon Business had over 1M business customers as of July 2017, and in 2019, the B2B platform’s gross revenue grew 3 times faster than the company’s overall revenue growth of 20.5%, according to RBC Capital Markets.

The card serves as a way to attract customers that have been turned down by traditional banks due to limited business credit history. Initially launched in the US, Amazon Business Prime is now available in the UK, Germany, Japan, and most recently Canada.

Perks include giving businesses control over employee spend, analytics tools for spend and inventory management, and discounts on Amazon Web Services (AWS). Prime members receive extra incentives, like priority shipping and pricing.

Amazon also offers services such as Pay by Invoice, which allows selected small businesses to buy now and pay within 30 days — or 45-60 days, if the customer has an Amazon Prime Business account. In addition, it offers SMBs a revolving credit line and a pay-in-full credit line, in partnership with Synchrony Bank.

B2B e-commerce transactions are expected to reach $9T globally, with $1.8T coming from the US, by 2021 — reportedly growing at a faster rate than online retail sales. Amazon is looking to replicate the network effects of its consumer arm with SMBs, as having more Amazon Business customers will improve its ability to connect B2B buyers and sellers to transact directly, unlocking cost savings.

Consumer lending

Amazon offers Amazon Prime cards to help serve 2 broader corporate goals: grow Prime customers and increase marketplace sales. To attract card customers, Amazon has been adding perks that are exclusive to Prime members. Cardholders are likely to spend more on Amazon than non-cardholders, which also benefits Amazon’s marketplace (and boosts customer loyalty).

On the consumer side, Amazon has tried out several partner cards for Prime and non-Prime customers, which include:

Amazon Prime Store Card — Launched in 2015 with partner Synchrony Bank, it was Amazon’s first card exclusively for Prime customers, offering unlimited 5% cash back on Amazon purchases.

— Launched in 2015 with partner Synchrony Bank, it was Amazon’s first card exclusively for Prime customers, offering unlimited 5% cash back on Amazon purchases. Amazon Store Card — Offers some of the benefits of the Prime Store Card but for non-Prime customers. It does not offer the 5% cash back perk.

— Offers some of the benefits of the Prime Store Card but for non-Prime customers. It does not offer the 5% cash back perk. Amazon Prime Rewards Visa Signature Card — Launched in 2017 with Visa, this card gives Prime members 5% cash back at Amazon and Whole Foods, 2% cash back at gas stations, restaurants, and drugstores, and 1% cash back on everything else.

— Launched in 2017 with Visa, this card gives Prime members 5% cash back at Amazon and Whole Foods, 2% cash back at gas stations, restaurants, and drugstores, and 1% cash back on everything else. Amazon Rewards Visa Signature Card — Partner card with Visa for non-Prime customers that offers 3% cash back on Amazon and Whole Foods purchases, 2% cash back at gas stations, restaurants, and drugstores, and 1% cash back on everything else.

Amazon Reload — A reloadable digital debit card available only to Prime members that offers 2% cash back on Amazon purchases. The card links directly to consumers’ checking accounts and can be reloaded on a recurring or one-time basis.

— A reloadable digital debit card available only to Prime members that offers 2% cash back on Amazon purchases. The card links directly to consumers’ checking accounts and can be reloaded on a recurring or one-time basis. Amazon Credit Builder — In Q2’19, Amazon partnered with Synchrony Bank to create a program that helps customers in the unbanked and underbanked income brackets boost their credit with a secured credit card. Like secured credit cards offered at banks, it requires a one-time deposit between $100 and $1,000 at the time of the account opening, which then becomes the card’s credit limit.

Both the Amazon Prime Store Card and Amazon Store Card offer 0% financing for consumers on certain kinds of Amazon purchases:

Purchases of $150 or more if fully paid within 6 months.

Purchases of $600 or more if fully paid within 12 months.

Select Amazon purchases if fully paid within 24 months.

Amazon is also frequently featured as a destination to spend credit card points by credit programs including Chase Freedom, Discover Cash Match, and Blue Cash for Amex.

Future developments:

In 2018, Amazon extended the 5% cash back reward to purchases at Whole Foods on the Prime Rewards Visa Card. This is one example of how Amazon is adding perks and exclusive benefits for Prime customers, making the cards more competitive and attractive to customers in-store.

More broadly, Amazon’s Visa cards suggest it is pushing beyond limited-use store cards into everyday-use cards.

“Our vision is that every day Prime makes your life better, easier and more fun, and shopping at Whole Foods Market with exclusive deals and savings is all of this and more.” — Cem Sibay, vice president, Amazon Prime

Amazon’s addition of options for underbanked consumers and broader range of offerings — from cards with significant cash back rewards and 0% financing, to accepting SNAP benefits as payments, to launching secured cards for credit rebuilding — suggests that the company is looking to bring as many consumers as possible into the credit market and incentivizing them to stay through perks tied back to the ecosystem.

Amazon’s next financial pillar?

While Amazon is making moves across the payments, cash, and lending spaces, it could also look to further expand across the financial services ecosystem.

Checking accounts

Amazon had patented methods for linking bank account information and for prepaid cards as early as 2004. As seen below, these patents offer supporting insights into what a bank account issued by Amazon could look like.

The company’s competitive advantage lies in its cloud infrastructure and online hosting. In the event that Amazon does decide to offer full-fledged banking account services, AWS would enable it to have cloud-based operations that would be more secure than traditional banks or its other Big Tech competitors.

However, while Amazon has pushed into checking primarily through its Amazon Cash offering, it seems to have abandoned plans to create its own checking account so as to avoid becoming subject to strict banking regulations, according to The Information.

Insurance

Amazon has shown nascent interest across insurance markets and products.

The earliest reported foray into the space was in April 2016 with Amazon Protect, a white-label service in the UK that provides accidental and theft insurance on consumer goods ranging from headphones to kitchen appliances. Claims are underwritten through a partnership with The Warranty Group’s London General Insurance Company. The program has since expanded to other European countries including Spain, Italy, Germany, and France.

In June 2018, The Warranty Group, which underwrites Amazon Protect in the UK and abroad, was purchased by Assurant for a rumored $2.5B. The acquisition could make it easier to expand Amazon Protect to new markets that are under Assurant’s umbrella of lifestyle protection products.

Meanwhile, Amazon made an early insurance push in India by leading a $12M investment in insurtech startup Acko in May 2018. Acko offers traditional car and bike insurance policies, but it is increasingly focused on “internet economy” deals, which primarily consist of e-commerce, travel, and ride hailing-focused products such as an in-trip insurance program with Ola. On its new investor, Acko CEO Varun Dua said,

“The idea is to find some way to collaborate in the future. We’re a new age insurance company and [Amazon] believes it can create value.”

In September 2018, Amazon made its interest in the insurance market in India even clearer when it filed with the country’s Registrar of Companies to begin selling its own health, life, and general insurance products. In March 2019, Amazon received its corporate agent license from the Insurance Regulatory and Development Authority of India, clearing the way for the company to proceed further.

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Amid the Covid-19 pandemic, Amazon began offering cost-free health insurance to its sellers in India, with Acko handling the policies, claims, and reimbursement.

In September 2019, Amazon rolled out a pilot for Amazon Care, a health insurance service for its employees in the Seattle, WA area. It comes as part of the company’s joint venture with J.P. Morgan Chase and Berkshire Hathaway, called Haven Healthcare.

Spain-based BBVA has also begun to operate product sales on Amazon. This relationship could lead to the sale of the bank’s various products, including insurance.

Because Amazon would get a cut of each financial service transaction made on its platform, it may look to get other banks and financial institutions to sell their services online.

Market strategy outside the US

According to Morgan Stanley Research, Amazon’s long-term top line is 2-3x more exposed to emerging markets than that of rival Alibaba. Amazon is aggressively entering emerging markets to expand, but also to pilot and take a deeper role in developing new financial services products.

These emerging markets are attractive because of rapid mobile internet adoption, a lack of legacy infrastructure, and a growing number of the population entering into the middle class. Two of the most notable markets where this is taking place today are India and Mexico.

India

Growing its presence in India is core to Amazon’s broader market strategy, and the company has reportedly invested $6B of the $7B it verbally committed to the country (up from a $5B commitment it laid out in 2016).

In January 2020, Amazon announced an additional investment of $1B into the country to help India-based SMBs sell online via its platform. Bezos said that he expected the retailing platform to export Indian goods worth $10B by 2025.

In June 2020, Amazon launched its Smart Store feature in India through its Pay arm. The feature allows small businesses to set up a digital storefront on the Amazon marketplace that customers can access by scanning a QR code. Customers can then make online payments through their Amazon wallet, credit and debit cards, or in monthly installments.

Amazon’s investments and M&A are concentrated in India

Amazon’s global fintech investments and acquisitions are light compared to the company’s broader portfolio bets. However, a majority of those it’s made have taken place in India, aligned with the company’s strategic desire to expand in the country, enable SMBs, and drive more marketplace sales.

Payments

Similar to its US strategy, Amazon is investing in enabling faster, frictionless payments to help boost marketplace sales — always a key focus for the e-commerce giant.

In Q1’16, Amazon acquired Emvantage Payments, which was quickly integrated into Amazon Pay and relaunched as a digital wallet in December 2016.

June 2018 marked the fifth anniversary of Amazon’s e-marketplace in India. To celebrate, Bezos wrote a letter to customers offering cash back of Rs 250 ($3) — to be paid into Amazon Pay wallets — for customers who shopped online for goods worth Rs 1,000 ($13). The move strategically pushed consumers toward Amazon Pay, which reported early losses of Rs 177 crore ($26.6M) on income of Rs 7.4 ($1.11M) crore for FY17.

Some of that burn is the result of the fixed operating costs to set up the business, but is also money spent in promotional offers to acquire customers. Amazon has a firm belief that its customer lifetime value (LTV) exceeds its customer acquisition cost (CAC), which is why it continues to be competitive on price.

At the time, Amazon also announced it would inject more capital in its Indian digital payment business. In January 2020, Amazon Pay in India raised Rs 13.5B ($18M) from the company’s subsidiaries in Mauritius and Singapore, bringing its total capital raised to Rs 43.3B ($58M).

In addition to cash, the company is also launching new services and ramping up investments in startups.

In January 2018, Amazon Pay rolled out the Doorstep feature, a cash pickup service that allows customers to load money into their Amazon Pay digital payment wallets. Users can top up their balances using cash for digital services including food delivery, bill payment, and mobile recharges.

In Q3’16, Amazon also invested in prepaid gift card services company Qwikcilver. The gift card system has since been integrated into Amazon Pay and can be used as a form of payment on the Amazon India marketplace. In Q2’18, Qwikcilver partnered with Xiaomi’s Mi.com to offer electronic gift cards that redirect buyers to Amazon.

In May 2018, Amazon co-invested with Mastercard in an $8M Series B to ToneTag. ToneTag is a contactless payments hardware and software provider that can be integrated at both merchant (e.g. mobile, point of sale, card readers) and customer (e.g. mobile wallet, mobile banking apps) interaction points.

The ToneTag platform will be integrated into Amazon Pay, which will expand Amazon’s reach to ToneTag’s reported 50M consumers (including merchants, parking garages, and restaurants) and 25,000 Retail Pods (the company’s hardware product that merchants use to accept payments) in India. This partnership will also expand Amazon Pay in India to offline commerce, a milestone that took the company over a decade in the US.

In August 2018, Amazon acquired Tapzo, an all-in-one mobile platform based in India that aggregates a variety of apps in one place. The move could allow Amazon to facilitate flight booking and other diverse transactions.

Further, this type of tool should help Amazon learn how to seamlessly integrate product and service offerings in one platform. Watch for lessons from this kind of all-in-one functionality to spread to other markets, including the Americas.

Amazon has also partnered with a handful of on-demand, high-frequency businesses including food delivery app Swiggy and ticketing app BookMyShow, all of which could boost payment processing volume.

In April 2019, Amazon launched a peer-to-peer payments feature for Amazon Pay in India. This allows users to make payments to friends and family, in addition to using the digital wallet for making purchases online and in stores.

Lending

One of Amazon’s first equity investments in 2018 was a $22M Series C-II investment in Capital Float, a platform that provides working capital finance to SMBs. Following the investment, the company reported it had 80,000 customers across 300 cities, issued $170M in loans, and disbursed 10,000 loans on a monthly basis. In April 2020, Capital Float raised an additional $15M from existing investors including Amazon.

Capital Float has also expanded into point-of-sale financing for retailers, launched an online payments gateway for borrowers to repay loans, and started piloting alternative underwriting models.

This investment complements Amazon’s broader push to support SMBs. In 2017, Amazon partnered with the Bank of Baroda to provide loans to thousands of Amazon’s e-sellers to help suppliers expand their operations and finance inventory during seasonal spikes.

In June 2018, Amazon launched a new lending experiment in India, a marketplace for lenders and sellers to obtain a competitive loan. Amazon has already onboarded 5 lenders to the platform including portfolio company Capital Float, Capital First, Bank of Baroda, Aditya Birla Finance, and Yes Bank.

In April 2019, Amazon announced its first lending API integration with the lending platform FlexiLoans. With this partnership, Amazon sellers in India can get loans set up directly in their Amazon Seller Dashboard. FlexiLoans offers underbanked Amazon sellers funding and collateral-free loans, and processed 10,000 loans between 2016 and 2019.

On the consumer side, Amazon offers a credit card in partnership with ICICI Bank that provides 5% cash back on all Amazon purchases for Prime members and 3% cash back for non-Prime members.

In April 2020, Amazon launched its Amazon Pay Later service in India in partnership with Capital Float. Pay Later is an instant credit service that allows interest-free purchases on Amazon.in and bill payments of up to $800.

Insurance

One of Amazon’s recent investments in India-based insurance was a $65M Series C in Q1’19 to Acko, which brought the company’s valuation to $300M. The investment is a follow-on round from a $12M Series B investment in Q2’18, which Amazon also participated in.

Acko reports having 20M customers on its platform for B2C and B2B coverage, as well as third-party micro-insurance for ticket cancellation, ride-hailing, and driver protection. Ola, redBus, Zomato, UrbanClap, and Amazon are among the 15 companies that use Acko for coverage.

In 2019, Amazon received a license to start selling third-party insurance products in India. In addition, the company launched a feature to enable payments of insurance premiums in India through its Amazon Pay wallet, and has been pushing the car insurance product offered by Acko on its platform.

India presents a vast opportunity for Amazon to experiment with its insurance business. Overall insurance penetration in the country increased from just 2.7% to 3.7% between 2001 and 2019, meaning there are plenty of potential customers for the company. The overall value of the insurance market in India is estimated to be worth over $200B in the coming years.

Mexico

Amazon has quickly learned from expanding financial services in India and is looking to apply what it’s learned to other developing markets, notably Mexico.

Since March 2017, Amazon has launched Amazon Prime, Amazon Cash, and Amazon Cash debit cards in Mexico. All align with Amazon’s broader strategy of building a low-friction payments service to attract customers online and then providing shoppers an alternative to credit and debit cards to build loyalty.

Payments

Amazon Cash launched in Mexico in October 2017. Similar to the US model, it allows customers to reload their accounts through deposits (up to 10,000 pesos, or $444) at convenience store chains such as 7-Eleven and other merchants pictured below.

In March 2018, the company launched a debit card with partner Grupo Financiero Banorte, a Mexican bank, called Amazon Recargable (Rechargeable). Like Amazon Cash, customers can deposit cash on the debit card at convenience stores across the country.

Amazon’s financial services push is significant for Mexico because many customers are unbanked. This may give customers access to a debit card for the first time, as cash is the preferred payment method for approximately 90% of all purchases. These hurdles mean Mexico is an untapped opportunity for Amazon to convert offline purchases to online commerce.

In March 2019, Amazon was reported to be working on a mobile payment system in partnership with Mexico’s central bank. The system, also known as CoDi, allows people to use QR codes to pay for purchases made both on- and offline.

CoDi rolled out first as a small pilot that spring, with a complete rollout in October 2019 with 33 participating banks.

Amazon’s main retail business still lags behind that of competitor MercadoLibre in Mexico, so owning more of the country’s payments infrastructure could be a powerful lever for Amazon to use to catch up.

Rumors: What will Amazon do next?

If there’s anything we’ve learned from Amazon, it’s to never say never. After the news broke that Amazon was looking to offer a checking account-like product, mentions of Amazon and banking crossed over 600+ media mentions. Although the company has since scrapped the idea, the media attention remains.

In that spirit, here are some of the noteworthy rumors in the wild:

Rumor: Amazon is going deeper into the home

Source: July 2019, NY Times

Why it’s interesting: Amazon is working with residential real estate brokerage Realogy to create TurnKey, a service to connect buyers and realtors on Amazon’s marketplace. Amazon will give buyers between $1,000-$5,000 in home services and smart home gear if they close.

Amazon is trying to wedge itself deeper into the home. By getting ahead of buyers as they start their search and incentivizing them with Amazon services, the company is aiming to create a massive cross-selling opportunity for its products.

It’s also a new way to grow distribution for its portfolio of home hardware devices such as Ring, smart devices like Alexa, and services like Amazon Home Services installation. The move could also help Amazon expand into home insurance or mortgage offerings.

Further reading: It’s Not Just Your Smart Speaker. How Amazon Is Coming For The $50T+ Commercial and Residential Real Estate Industries

Rumor: Amazon reportedly had discussions about offering home insurance

Source: June 2018, The Information

Why it’s interesting: This rumor is based on an anonymous source that reported Amazon had discussions about offering insurance in conjunction with its connected home devices. However, none of Amazon’s existing investments or products tie to home insurance, at least in the US. While the company has made insurtech investments in India (such as in Acko) and a partnership in the EU to offer Amazon Protect, acting as more than a distributor of existing home insurance products seems unlikely.

Rumor: Amazon is getting into mortgages

Source: March 2018, Housing Wire

Why it’s interesting: While Amazon has not made concrete plans, it has been making a series of strategic hires for lending with a focus on mortgage banking. The company hired a head of its newly formed mortgage lending division. In addition, the firm has a number of home services businesses such as Alexa, Prime streaming, and Amazon Fire Stick, and this could be its next move in owning the home.

Rumor: Amazon is getting into health insurance

Source: January 2018, Engadget

Why it’s interesting: Amazon has signaled that it is looking at healthcare seriously. In 2017, the company posted several internal job openings for a new stealth team called the “1492 squad,” relating to the use of medical records. It has also invested in cancer startup Grail, participating in the company’s $914M Series B in Q1’17, and has hired a healthcare and life sciences director away from Box.

More recently, Amazon has joined forces with J.P. Morgan and Berkshire Hathaway on the Haven Healthcare joint venture. It also acquired Health Navigator, a startup that helps check symptoms and determine triage online, and added the features to its pilot of Amazon Care.

Rumor: Ripple is helping Amazon with cross border payments

Source: May 2018, CryptoDaily

Why it’s interesting: While cryptocurrencies saw a huge spike in interest in 2017, many of the world’s most prominent figures in financial services — including J.P. Morgan CEO Jamie Dimon and Berkshire Hathaway CEO Warren Buffett — have outwardly cast it aside as mass speculation. Amazon is known to take unconventional approaches to solve customer pain points, so it would not be surprising if it were to explore applications of blockchain across financial services products.

Rumor: Amazon and PayPal are meeting with bank regulators to expand their financial services

Source: December 2017, American Banker

Why it’s interesting: Amazon and some other FAMGA (Facebook, Amazon, Microsoft, Google, Apple) members have been making headlines with rumors of moving deeper into financial services. Skeptics have punted back that the complexity of the regulatory landscape would inhibit them from entering the market. News that the firms are connecting with financial regulators suggests that regulations are not an inhibitor, but rather just an obstacle, and meeting with the Office of the Comptroller of the Currency (OCC) is one way to get the conversation going to overcome it.

Following this meeting, the OCC worked on a fintech charter for tech firms, including Amazon, which was supposed to include a centralized application that would give tech firms a limited (but universal) financial license vs. having to go state by state for approval. However, a federal court ruled in October 2019 that the OCC did not have the authority to issue such a charter. The OCC plans to appeal the decision.

Rumor: Amazon is buying Capital One

Source: February 2017, American Banker

Why it’s interesting: This rumor was one of the earliest that suggested Amazon would buy a bank. Amazon has a decent amount of cash on its balance sheet and could use that cash to buy a small regional bank. Capital One, in particular, is already operating on the AWS cloud and is looking to make further inroads into personal finance, so it could be a good combination.

Closing thoughts

Amazon’s strategy in financial services has been focused on supporting its core strategic goal: increasing participation (both from buyers and sellers) on its platform.

In practice, Amazon has relied much more heavily on internal product development than partnerships, M&A, or investments to broaden its financial services offerings. Relative to its FAMGA cousins (which have been much more active on the M&A and investment front), this is a surprising strategic decision. What’s not surprising is to see Amazon methodically seed, invest, and nurture a product line with a distant horizon in mind.

Zooming out a bit further, one can see the beginnings of what the Bank of Amazon could look like — a variety of key financial services products that support Amazon participants first, and enable them to buy, sell, and transact more easily than any other platform.

And that potential Bank of Amazon should worry traditional incumbents. If history provides a useful lesson, it’s that Amazon first builds core product pillars for itself, where it is the only and most important customer. This was most famously the case with AWS, which was the result of overhauling its own internal capacity for cloud services that were later repurposed for external clients and third parties. Only after years of building a product and iterating on features for itself does Amazon launch and expose a key product pillar to other customers.

When that point comes with finance, it will likely be too late for incumbents that have not yet responded.

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Additional reading:

Amazon Strategy Teardown: Amazon’s Barreling Into Physical Retail, Financial Services, Healthcare, And AI-Led Computing

Amazon Vs. Alibaba: How The E-Commerce Giants Stack Up In The Fight To Go Global

How 5 Tech Giants Are Leveraging Data To Reinvent Lending

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