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Amazon’s New Credit Card Primed To Disrupt Retail

Amazon Credit Card
Amazon Go

In July 1995, when Amazon sold its first book, Fluid Concepts and Creative Analogies by Douglas Hofstadter, few could have predicted the disruptions that would follow.

One-click purchasing. Drones. Amazon Prime. Amazon Go.

Yesterday, Amazon announced its latest benefit for Amazon Prime members: an Amazon Prime credit card that offers 5% off every Amazon purchase, plus multiple other benefits.

Here’s what you need to know:

The Credit Card Benefits

  1. In addition to 5% off every Amazon purchase, the Amazon Prime Rewards Visa Signature Card is issued in partnership with J.P. Morgan Chase & Co. and also offers additional cash back benefits, including 2% back at restaurants, gas stations and drugstores and 1% back on every other purchase.
  2. The credit card is included in your Amazon Prime membership and therefore has no additional annual fee.
  3. The credit card waives all foreign transaction fees, which makes the card international travel friendly.
  4. Like several other leading credit cards, the credit card offers travel insurance, 24/7 concierge service and roadside assistance.
  5. The Amazon Prime credit card is made with metal like the American Express Centurion Card (and Chase Sapphire Reserve Card).
  6. The credit card also comes with a $70 Amazon gift card, which could pay most of your Amazon Prime annual membership fee.

Amazon Prime, which for $99 per year includes unlimited free two-day shipping, free movies and television shows, music, books, magazines and more, currently offers a no-fee Store Card with 5% cash back on Amazon purchases (but the card does not accrue benefits for non-Amazon purchases).

If you are not an Amazon Prime member, you can still sign up for the credit card, but will receive only a 3% discount on all Amazon purchases.

The credit card’s APR ranges from 14.74% to 22.74%, which is lower than the 26% APR on the Store Card.

How It Works

The credit card works on a point system. For every purchase you make, points accrue based on the spending category, with $1 spent yielding 100 points.

For example, if you spend $100, you would receive 500 points if spent on Amazon, 200 points if spent at restaurants, gas stations or drug stores, and 100 points for all other purchases.

Points may be redeemed one the following ways:

  1. You can apply the balance toward cash back sent directly to your credit card
  2. You can receive a statement credit on your next credit card bill
  3. You can receive a direct discount on your next Amazon purchase

Why Amazon Is Offering This

Numerous brands – from airlines to hotels to retailers – offer company-specific credit cards to entice customers to spend more with their brand. While Amazon wants the same from its customer, Amazon’s benefits appear more generous than its retail peers.

Clearly, Amazon wants to increase its Prime membership base, which has been a major profitability and growth engine for Amazon (the company says Prime members spend twice as much as regular members, given the unlimited free shipping) and an effective strategy to retain its customer base. According to Consumer Intelligence Research Partners, nearly half of U.S. households have an Amazon Prime membership.

The 5% cash back is a push to migrate more consumers from brick and mortar retailers (like Target and Walmart) to online (Amazon). By bundling the credit card with Amazon Prime, Amazon has an advantage over its retail competitors by providing free streaming content on top of the extra credit card benefits. Like Amazon Prime’s free shipping benefit, Amazon’s strategy with the generous 5% cash back is to make consumers make Amazon their default retailer for virtually all their shopping needs. Since Amazon sells such a wide variety of products ranging from food to electronics, that means consumers can earn 5% cash back on virtually everything – which is more favorable for Amazon Prime cardholders compared with other retail-specific cards.

Should You Get This Card?

If you are a Prime member, use Amazon regularly for your shopping needs and are searching for a credit card with generous cash back and other benefits, then Amazon’s new credit card is an attractive option.

What do you think of Amazon’s new credit card? Would you sign up or are there better credit cards that you prefer? Will Amazon’s move impact American Express? Share your perspectives in the comment section below.

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