Payments Views


Is Amazon Best-in-Class for Online Payments? is in the news all the time with its continued expansion of markets and fulfillment centers, its focus on innovation and long term R&D, and, recently, some very non-intuitive acquisitions. It’s easy to get swept up in their story. But when a company gets as big and powerful as Amazon has become, it’s helpful to step back and see what lessons can be learned. And, of course, we like to do that from a payments perspective.

A big part of Amazon’s success in payments is tied to its scale. Because of its size and the purchase volume it generates, it can negotiate — if not demand — the best rates from payment providers. And its scale justifies the development and deployment of features that would only be nice-to-have capabilities for many retailers.

I just said something subtle. I differentiated between its size and its purchase volume. For most companies these are the same thing. A $2.5 billion merchant sells $2.5 billion worth of goods and reports $2.5 billion worth of revenue. Amazon reported 2016 revenue of $136 billion, but it originated a lot more purchase volume than that.

Why is that? Because Amazon uses a marketplace model, its revenue is a combination of what it sells directly and service fees for what its marketplace merchants sell with Amazon’s help. In rough numbers think of third party marketplace merchants adding another 50% of purchase volume to the transactions Amazon processes. The total marketplace volume also doesn’t include the off-Amazon purchase volume that flows through Amazon Pay. That’s incremental as well.

I would be surprised if Amazon didn’t negotiate with third parties from a position of $250 billion in payment volume. That extra purchase volume doesn’t just help drive down processing costs, it also helps Amazon optimize its machine learning algorithms for fighting online fraud. It’s a great model.

From this, what other best-in-class payment techniques does Amazon use?

Reusable Payment Data

Scale also includes 300 million plus active accounts containing default payment data and default ship-to information. The first best-in-class observation is that this payment data is usable across all product lines and all ordering channels. Not just their marketplace, but everything from Amazon Fresh to Woot! It’s usable over Alexa for voice-driven commerce and its usable off-Amazon at Amazon Pay merchants. This seems like a “duh” observation; of course it should be done this way. But think about how many merchants have different, unrelated views of their customers. That’s why multi-channel is such a hot investment area right now. Because many, many merchants don’t have this integrated view.

Localized Payment Processing

For methods of payments, Amazon supports international general purpose cards all over the world – Visa, Mastercard, American Express, Discover, JCB, and UnionPay (credit card only). Most online merchants would support the first four on that list. The additional support for JCB and UnionPay gives Amazon broader payments support to reach global consumers no matter where they are. Payment method coverage matters.

And here’s the best part, and what I consider the second best-in-class observation. Amazon operates 14 worldwide sites and has in-region fulfillment centers for fast delivery to these markets. It does that for commerce reasons. But with a local presence comes the opportunity to process local orders locally instead of cross-border back to the United States. There are multiple benefits from this.

First, when processing locally, Amazon is only paying in-country interchange instead of cross-border fees and U.S. interchange. This a big win because the U.S. market has one of the highest domestic interchange rates in the world. More importantly, local authorization rates are much higher than cross-border authorization rates. So not only are there more good transactions, they also cost less from Amazon’s perspective.

The second win from local processing is that Amazon now has the ability to accept local forms of payment that are prevalent in the local market – cash on delivery (COD), cash on order (COO), domestic prepaid cards, domestic bank transfers, installment payments – whatever is prevalent in the local market. Even domestic Amazon gift cards. These local forms of payment are critical for reaching the largest number of potential buyers that may not have access to an international, general purpose card. Or even have a bank account.

Top-Line Enablers

In our Payments Boot Camps we always talk about what motivates and drives users and providers of payment systems to take action. For consumers, it’s convenience and financial gain that most often cause them to change how they use payments. For merchants, it’s getting paid, selling more stuff, and saving some costs — in that order. So what payment techniques does Amazon use to sell more stuff?

Amazon Co-Brand Card

The Amazon Rewards Visa Signature Card was the original enabler to drive more consumer spending on Amazon. What was originally 1% cash back every time card is used has been expanded to 2% cash back for use in select categories (restaurants, gas stations, drug stores), and more recently, 5% cash back for use on if you are a Prime member. That provides plenty of motivation for an Amazon buyer to prefer the Amazon co-brand card on Amazon.

General purpose co-brand cards are known top-line enablers. Not only do they provide more buying power to the customer, they also generate cash back that can only be used with the co-brand partner. These soft dollars make an Amazon purchase decision more obvious because the dollars can be used to offset the cost of the same item on Amazon compared to another retailer. From a best practices perspective, Amazon also does in-checkout-flow application, underwriting, and provisioning of the new card right into the buyers Amazon account. If the buyer is approved, the current purchase (not a future purpose!) can be completed with an Amazon Reward card.

Amazon Private Label Credit Card

The Amazon Prime Store Card is relatively new and has the same benefit to Amazon as the Amazon Rewards Card. This card is targeted at consumers that are more “down market” and may not qualify for the general purpose Amazon Reward Card. Amazon still wants to extend buying power to these customers, but this time it is Amazon-specific buying power as the card can only be used with an Amazon account.

Amazon has taken a page from Target’s playbook and offers 5% cash back (as a monthly statement credit) for Prime Members on any purchase made with the card. It also providers Amazon buyers with access to promotional financing – 6 months on $149 or more, 12 months on $599 or more, 24 months on select high-ticket purchases. Like the Amazon Reward Card there is an instant credit decision, plus the Amazon customer gets a $40 Amazon gift card on approval. This is not a general purpose card and Amazon does not pay interchange on its use. Any purchase that is financed with the Amazon Prime Store Card likely has very, very attractive economics to Amazon. Not just on the incremental payment transaction, but probably on some part of the interest earned by the issuer of the card if the consumer revolves.

Amazon Corporate Credit Line

This is another variation of credit extension (net 55) to drive incremental sales. In the case of the Amazon Corporate Credit Line, the incremental sales come from libraries, schools, government institutions, and large businesses. Small-to-medium size businesses also have the option to revolve their purchases.

This is a good example of how support for payment methods can be segmented by buyer type. In addition to the credit facility, Amazon also supports the identification and linking of primary and secondary Amazon accounts so a business could have a single Amazon Corporate Credit Line that is accessible by multiple employees inside the company. Once again, providing buying power and spreading it across the maximum number of customers.

Amazon Gift Card

This closed loop, private label card is sold both in store at the gift card mall and sold online directly by Amazon. Amazon customers get 5% cash back on the first $100 load, and 2% cash back on all subsequent reloads for $100 or more from a debit card or a bank account. For customers that don’t qualify for Amazon’s various credit-oriented reward products, this is an attractive way to enjoy ongoing discounts from Amazon — further locking in the customer to buying on Amazon.

From Amazon’s perspective, these are Amazon-specific funds being held by Amazon (in a pooled bank account) that have all sorts of wonderful characteristics. The Amazon Gift Card gives them access to the unbanked that can now use cash to obtain online Amazon spending power at the convenience store. It has the well-known gifting “overspend” characteristic when actually given as a gift. And it provides a handy way for Amazon to refund and reward customers without encountering any real-world transaction cost. More on this later.

To illustrate how merchants can push this type of product for the maximum benefit, Amazon has an allowance program for minors based on the parents being able to auto-reload gift card balance for their kids. There is also a bulk order program for corporate customers, so the gifting effect can be amplified across the whole office or company.

Pay with Points

Originally, Amazon’s Pay with Points enabled their own Amazon Reward Card customers to spend their reward points on Amazon. But in recent years, partnerships with AmEx, Chase, Citi, and Discover have extended this even further so that the billions of dollars in reward points tied up with four of the largest credit card issuers in the U.S. can now be spent on Amazon.

While not the only merchant with Pay with Points partnership, Amazon’s selection and scale make it an obvious choice for any cardholder that has a backlog of points they would like to use. It effectively lowers the perceived cost of goods while creating incremental sales and ongoing loyalty to Amazon. It’s hard to say what the private economics are to Amazon when the buyer pays with points.

Bottom Line Enhancements

Not all payment-related enhancements are focused on incremental sales. Some are focused on reducing the payments cost basis for Amazon without driving incremental sales.

Refund to Amazon Balance

One of the simpler techniques leverages the Amazon Gift Card. When a customer asks for a refund, Amazon will ask the customer whether they would like the purchase refunded back to the original method of payment or refunded back to their Amazon Balance for use on a future purchase.

A refund back to the original method of payment has real world cost. Amazon would get the original interchange back, but would still have to pay transaction fees on that refund. A refund to Amazon Balance has no real-world transaction costs for Amazon — on the refund or on the next subsequent purchase that uses Gift Card Balance.

Lowest Cost Debit Card Routing

Another cost reduction technique available in the U.S. market is to route the purchase across the lowest cost debit card network. By law in the U.S. (Regulation II) every debit card in the nation is required to have two unaffiliated routing paths back to the issuing bank. In practice, this typically means a Visa/Mastercard routing path and a non-Visa/Mastercard routing path.

For Amazon, they have negotiated PINless Debit network routing agreements with NYCE and STAR to complement the normal Visa and Mastercard routing paths. By default, Amazon will route purchases in the U.S. made with a debit card over the least expensive debit card network for that transaction. Amazon provides its customers with the ability to opt-out of that non-standard routing path, but I suspect not many have done so and likely have little understanding of debit network routing paths.  

Amazon Currency Converter

The Amazon Currency Converter is Amazon’s dynamic currency conversion offering that helps cross-border customers buying across markets lock in their actual cost without having to wait to see what the card networks set as the conversion rate when the transaction clears. In addition to helping the customer have some certainty about what a purchase costs, this offering also gives Amazon an opportunity to participate in the currency conversion revenue. This is likely not a revenue center inside the company, but perhaps helps offset some of the cross-border transaction cost on international orders.

Reduced Checkout Friction

Amazon has also given a lot of thought to techniques it can use to reduce friction inside of checkout and maximize the chances that the order successfully completes.

The most obvious example of this is the original 1-Click checkout model that Amazon developed almost 20 years ago. This model draws on the idea that repeat customers have already established their default payment method, default shipment method, and default ship-to address. Instead of going through the normal checkout flow to review and validate every step, Amazon just provides the ability to buy with a single click.

This is an obvious example of reducing checkout friction. But there are some other subtle techniques that Amazon uses in the checkout flow that speak to what they DO NOT DO when compared to perceived best practices in checkout.

First, they don’t ask the customer for the CVN2 number off the back of the card. The CVN2 is used by many online merchants as another data point in the order acceptance risk assessment. “If you were the real cardholder, you would have the card, could read the CVN2 off the back, and could type or tap it into the checkout flow”. Whether or not that number matches what the issuer believes the number to be becomes part of the risk assessment. Amazon does not ask for the CVN2. Asking for this number is an enormous point of friction in the checkout flow, it contributes to cart abandonment, it’s not required in any way. Of course, their scale and data analytic smarts give them other ways that can risk manage online orders without having to resort to friction inside the checkout flow.

Second, they do not do a real-time authorization inside the checkout flow. This is more of a philosophical point than anything else. Amazon’s belief is that most customers are good, and that good customers should not be burdened with processes designed to weed out occasional bad customers. So when a customer places an order there is no authorization delay, there is no “do not hit the back button” messaging, there is just a simple “thank you” message from Amazon to the customer. If it turns out the purchase cannot be authorized, a good customer is delighted to go back to the Amazon account and update the card data on file.

Inside the checkout, Amazon will also help customers split funding between a gift card balance and a secondary funding source in order to provide the full order funding. To make the checkout process as slippery as possible, Amazon also offers “Amazon Households” so that members of the same family can share credit cards and debit cards across linked Amazon Accounts.


Our analysis shows there are many payment techniques used by Amazon that could be considered best-in-class. Others are doing interesting things as well, but is a great example of a global online merchant hitting on all cylinders in their approach to payments. The key takeaways for us are:

  • Use a global approach, but localize it for key markets if possible
  • Maximize payment alternatives to expand market coverages
  • Focus on cash back and savings – make it financially rewarding for customers
  • Look for opportunities to trim cost – but transparently and not at the cost of impacting top-line sales
  • Focus on reducing purchase friction – make it convenient for a customer to buy

What do you think?

If you have enjoyed this dive into how Amazon approaches payments, you might consider a Glenbrook Private Boot Camp. Our experts can come to your site for a two-day or one-day workshop designed to help you understand how payments systems work and how key developments in the industry might be leveraged for your organization.

In addition to covering some leading edge topics as tokenization, faster payments, and cross-border processing, we can also draw on case studies on PayPal, Square, Stripe, Alipay, Apple, and the Faster Payments service in the U.K.

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