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Amazon’s unique new credit card is a play for low-income Americans

Alison Griswold

Amazon needs more shoppers, so it’s giving people another way to pay.

This week, Amazon announced Amazon Credit Builder, a special credit card for US customers who need to build (or rebuild) their credit history. It’s available to US residents over 18 with a valid social security number or tax ID number, and can only be used for purchases on Amazon.com.

This particular card is what’s known as a “secured” card. That’s because to get one, the cardholder must pay a security deposit equivalent to their desired credit limit, with a minimum deposit of $100 and a maximum of $1,000. That money is held by Synchrony Bank, the financial firm partnering with Amazon on the card, and isn’t available for purchases—it is held by the bank, much like a deposit on a rental property. Secured cards account for less than 1% of US consumer credit, according to the Philadelphia Fed (pdf), which describes them as “a small and often misunderstood segment of the credit card market.”

Amazon advertises the card as a way to build credit, with the potential to upgrade to a regular Amazon Prime card in as little as seven months. The card’s benefits include no annual fee, a $20 Amazon gift card on opening, and 5% back on purchases for cardholders with an eligible Prime membership. (You could argue that to get the card’s full benefits, the annual fee is in fact the $119-a-year price of a Prime subscription.)

The disadvantages of the card include the security deposit, and only being able to use the card on Amazon. The card’s 28.24% interest rate is also high relative to the average for bank cards (18%) and other retail cards (26%), said Ted Rossman, industry analyst for CreditCards.com.

“I think it’s a really smart idea,” Rossman says. “A ton of people”—around 132 million, according to FICO—“fall into the subprime or no-credit categories.” The card is a win for the consumer, Rossman says, because Amazon sells so many things. And it’s a boon for Amazon “because as a retailer they win when they sell you stuff, but they’re also double-dipping because they’re getting in on the credit card financing too.”

Analysts have worried for some time that Amazon is running out of room to grow in the US. Researchers at investment firm Cowen estimated 63 million US households, or roughly half of families in the country, had a Prime account in the first quarter of 2019, up from 58 million a year earlier. Researchers at Morgan Stanley routinely warn Amazon could be limited by its inability to convert households earning less than $75,000 a year to Prime subscribers.

Amazon’s efforts to grow beyond the upper-middle-class population include a discounted Prime membership ($5.99 a month) for low-income Americans enrolled in certain government benefits programs. Amazon also offers a regular month-to-month Prime subscription for $12.99, and a monthly student membership for $6.49.

Rossman says the target audience for the secured credit card likely includes a lot of low-income consumers, but also young adults who don’t have a credit history and may have trouble getting approval for a traditional unsecured card. “It’s become difficult to get a credit card even in your mid-20s,” he says. “We’re seeing more and more of these alternative systems because there is this hole here for these young adults.”

 

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