Move could challenge Walmart Pay and other retailer initiatives.
While much attention has been paid to the shift to EMV credit cards and on mobile payment options linked to credit and debit cards, the number of unbanked or underbanked U.S. consumers continues to grow. Estimates indicate that 7.0 percent of households in the United States were unbanked in 2015. This proportion represents approximately 9.0 million households. An additional 19.9 percent of U.S. households (24.5 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system. This creates a market niche that some retailers have sought to secure with services aimed directly at those who do not hold accounts with traditional financial institutions.
To that end, Amazon has announced a new service catering to people who can’t or choose not to use credit cards or bank accounts. Unlike most existing prepaid credit cards, Amazon Cash carries no fees.
The new service allows shoppers to add between $15 and $500 in cash to their Amazon Balance at more than 10,000 retail stores nationwide; participating retailers include CVS Pharmacy, Speedway, Sheetz, Kum & Go, D&W Fresh Market, Family Fare and VG’s Grocery, with new retailers being added every month, according to Amazon.
The process involves a barcode, which shoppers can request via mobile or the Amazon website, and that can be scanned at a participating retailer to convert the cash, check or Amazon gift card balance to the Amazon balance for shopping on Amazon as well as its marketplace.
"Un- and underbanked Americans are underserved by traditional financial institutions because many don’t have the identification or money to qualify to open accounts. Instead, they are increasingly serviced by alternative financial services companies and are often limited to products that are more restrictive and have higher fees. While some of these consumers will voluntarily remain outside the banking mainstream, many will ultimately decide – and qualify – to enter it,” explained Robyn Kaiserman, Senior Financial Services Analyst at Mintel.
“Mainstream institutions need to focus marketing efforts on these customers as they begin to explore their banking options, paying special attention to their technology preferences and working toward dislodging the relationships many already have with alternative companies."
Amazon Cash is likely to challenge and potentially disrupt PayPal My Cash Card and Walmart Pay services, which appeal to the same general unbanked demographic. The cash customer accounts for approximately 27 percent of customers, according to the FDIC.