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Comment by cwilkes | Hacker News Reader

"Earning the interest rate" is the key phrase here. With that and paying 2% in fees Amazon is leaving money on the table. Why not become the next Citi?

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The answer probably is: "Capital could be better spent on the core businesses" rather than that they can't.

Even Amazon with all its projects has limited attention it can spend. Becoming a bank isn't something you half-ass, which is why they'll just continue to do cobranded cards with companies who are already banks.

I'd bet that Amazon is paying far less than 2% in card processing fees.

I'd take the other side of that bet. Walmart & Costco get those rates because they can and have played hardball in negotiations with the network, they've shown a willingness to go without credit cards.

Amazon needs credit cards more than the credit card networks need Amazon.

Also, Amazon transactions are virtually all card not present transactions.

Amazon's 2016 Annual Report lists $16.167B of "shipping costs" and $17.619B of "fulfillment costs", on a total of $135.987B of sales. Since shipping costs are included in fulfillment, this suggests to me that they paid at most $1.452B in payment processing fees, i.e., 1.06%.

But it's entirely possible that I'm reading the report wrong.

If they're made on-Amazon, and to someone with a 5-15 year Amazon profile, Prime, etc., shipped to home, etc., and with Amazon as the merchant (so they're going to handle CS rather than chargeback), yes, I'd take the bet that Amazon pays <2% for the Amazon Prime Chase Visa transactions for Prime customers on amazon.com. It's pretty low risk for MOTO compared to a card used at a random merchant online.

(Unless Amazon pays a higher fee but considers the 5% return to customers as some kind of "increase net spend on Amazon" benefit, but I think that's just Chase trying to kill Discover)

I've also wondered if the 5% back isn't something of an offset for the sales tax they've agreed to collect in some states. It doesn't totally cover the difference in high tax states versus ordering from someone else with free shipping with a 1-2% rebate card but it makes the delta small enough that many people may just default to Amazon.

Doesnt apply to me. Been with Amazon since 2005, prime 2 years now, bought a table that turned out to be scratched, open az claim, amazon said work with seller, seller was playing games for 2 months, no refund no return label for havy item that he promised is free to return, I went to bank and disputed the whole thing. Amazon didnt even blink, but it shows u your profile of a perfect amazon client might also ended up in dispute hitting their CB ratio.

Also as of this year Costco lost me as a client since they dont accept Amex anymore. To me that was enough.

Amazon is 4 in every $10 spent online in the US. They have a scale similar to Costco/WM who only got deals for/to break exclusivity. Amazon pays less than 2%, much less depending on card type. Manages fraud to about 6BPS on transactional basis. But the concept of the running a CC is not out of the question, but the economics/complexity don't align yet...

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