Amazon renews Prime credit card deal with JPMorgan after flirting with American Express
Amazon renews Prime credit card deal with JPMorgan after flirting with American Express

Jeff Bezos and Jamie Dimon.

Getty Images | CNBC

Amazon has chosen to renew a deal allowing JPMorgan Chase to issue the tech giant’s flagship credit card, ending months of heated negotiations, CNBC has learned.

The Amazon Prime Rewards card was one of the industry’s most coveted co-branded offers, a rare prize due to the massive reach of Amazon’s loyalty program, with its estimate 150 million American members, according to people familiar with the talks.

While JPMorgan issued Amazon’s card since it was little more than an online bookseller two decades ago, that hasn’t stopped Amazon from soliciting bids to replace the bank in mid-2021. American Express, Synchrony and Citigroup were among the issuers involved in the talks, and Mastercard had hoped to replace Visa as the payment network, said the people, who declined to be identified when speaking about the private process.

“It was a unique opportunity to break into Amazon and dramatically change your card business,” one person said. “If Chase were to lose it, it would be the hit in the payments world. Any winner would gain instant credibility and a new growth story for Wall Street.”

Credit card agreements with popular brands such as Amazon, Costco and American Airlines have become one of the most contested contracts in the financial world. This is because they instantly give the issuing bank a captive audience of millions of loyal customers who spend billions of dollars a year. Larger pacts can represent a disproportionate share of an issuer’s business; American Express lost 10% of its cards in circulation when Citigroup won the bid for the Costco Card in 2015.

Card transactions are so important to banks that CEOs including JPMorgan’s Jamie Dimon and Citigroup’s Jane Fraser have been known to get involved in transaction hashing, the people said.

Tense discussions

Discussions about the Amazon card included JPMorgan’s position that it could walk away of the two-decade partnership and sell its loan portfolio, Bloomberg reported in June. Loans from Amazon Prime customers held by the bank’s Chase division total about $20 billion, the sources said. This would trigger an arduous process of transferring millions of customers to a new bank while ensuring their cards still function flawlessly.

This may have been a negotiating tactic on the part of JPMorgan, because while Amazon has seen torrid growth during the pandemic as people were forced to stay home, other segments for which Chase cards are known – hotels, restaurants and entertainment – ​​have fallen sharply. This made Amazon even more important to America’s largest bank by assets.

Despite their importance to US banks and consumers, who have become obsessed with maximizing card rewards, the contracts themselves are shrouded in secrecy. Amazon asked participants to sign nondisclosure agreements and issued its own RFP, or RFP, for the deal, largely excluding third-party consultants, one of the people said.

Known for negotiating with its partners, Amazon pushed issuers to agree to their terms, the sources said. This included maintaining the card’s rich 5% reward rate for purchases at Amazon.com and Whole Foods, while having to fork out some of the bank’s income from loans, as well as reimbursing some of the fees for interchange that the bank would normally hold, the people said.

Longer deals

As big retailers have increased their influence over banks over the past decade, forcing lenders to accept more onerous revenue-sharing terms and offer richer rewards, deals have taken longer and longer. . What were typically five-year contracts have stretched to seven and ten years or even longer, industry players say, giving banks a better chance of making money on the cards. For example, Citigroup’s Costco deal effectively lasts for a decade, two of the people said.

Several of the banks involved hoped to be able to dislodge JPMorgan for at least some of the business, perhaps by being named as a secondary issuer along with Chase. American Express and Synchrony already had other cards with Amazon, including offers for small businesses and private labels. They and the other banks declined to comment for this story.

The Mastercard payment network sensed an opening last year amid a dispute between Amazon and Visa on the interchange fees the e-commerce giant is obligated to pay. Mastercard has sought interest from banks, including American Express, to see if they can team up to replace Chase and Visa, one of the people said. Ideally, Visa and Amazon reached a global agreement last month that allowed Visa cardholders to continue using their cards.

In the end, Amazon chose to stay with JPMorgan and the Visa network. The corporate relationship dates back to 2002, when a Chicago-based lender called Bank One (led by CEO Jamie Dimon at the time) sign the promising young Internet company to a card agreement. Bank One was acquired by JPMorgan two years later.

Dimon Bezos

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