Source: Amazon
Will a credit builder program create a new legion of loyal Amazon shoppers?
Amazon.com has launched a new program with Synchrony that the two companies say is designed to help people who have no credit history or want to rebuild their credit scores do so responsibly. Prime members will also gain access to five percent cash back on orders placed on the e-tailer’s site as well as financing options on eligible purchases.
Amazon Credit Builder is a secured card with a credit line equal to a security deposit put down by each cardholder. The deposit, from $100 to $1,000, is similar to those used to rent an apartment. It cannot be used for purchases made from Amazon and is refundable at the point when a person’s score has reached a level enabling them to achieve unsecured credit status. Members of the program may be eligible to upgrade from Credit Builder to the Amazon Store Card in as little as seven months. The interest rate for the card is 28.24 percent.
According to FICO data, the average American’s credit score is 700, although 11.5 percent have scores between 300 and 549. While providing consumers with an opportunity to establish or raise their credit scores, Amazon Credit Builder also provides access to free tools, such as the TransUnion CreditView Dashboard, and tips on how to maintain strong credit.
“There’s always going to be people that we can’t give credit to — this is a large population that we weren’t able to reach,” Tom Quindlen, executive vice president and CEO of Synchrony’s retail card business, told CNBC. “It’s a new segment of the market.”
Discussion Questions
DISCUSSION QUESTIONS: Do you think a large number of people with bad credit or no credit will be attracted to the Amazon Prime Store Credit Card Builder program? What do you think Amazon expects the eventual payoff to be from this effort?
Poll
BrainTrust
Ken Lonyai
Consultant, Strategist, Tech Innovator, UX Evangelist
Steve Dennis
President, Sageberry Consulting/Senior Forbes Contributor
This looks a very good idea. The interest rate borders on usury so that may keep some aspiring customers away. It is a great place to start if the consumer has enough money to not incur interest charges, but just didn’t have credit history heretofore.
Amazon is trying to push Prime to the limits of the population, but this effort to expand will have a minimal effect. The market size starts at 11.5% of Americans with low credit scores. Limiting this effort with high APR over 28% and a credit line equal to their deposit up to only $1000. Add in prime fees and customers are just not going to be interested in repairing credit this way — it would take too long to build up credit value to buy a car let alone a home or business.
There is little risk for Amazon and Synchrony here, but I doubt Amazon expects anything more than a limited expansion of their prime universe through this “feel good” financial responsibility move.
Amazon almost had me convinced that this was a good idea that actually helped people grow their credit … and then I saw the 28% interest rate. In theory, I love the idea of giving people a path to better credit. If the program also gives Amazon a new path to growth for Prime — which is dominated by consumers with higher incomes and presumably decent credit — all’s well that ends well.
Unfortunately, this feels perilously close to predatory. The average APR for retail store cards last year was 25.64%. Amazon and Synchrony are charging a premium above that exorbitant rate.
As Prime approaches saturation and Whole Foods looks like a quagmire of no real benefit so far, building better rapport/loyalty with the other end of the market is a logical growth strategy.
I’d like to understand how the card “cannot be used for purchases made from Amazon” yet “Members will also gain access to five percent cash back on orders placed on the e-tailer’s site?”
Amazon Prime wants to be synonymous with “trust” and “confidence” and “go-to.” For what earthly reason would they wake up one day and say, “…think I’ll go into the usury business”? Total head scratcher. Same idea with an advantageous interest rate = terrific.
Amazon’s real goal is to enable more people to buy from its website, and that requires a tender like a credit card. Yes, this method is a good opportunity if the consumer pays off the card each month and avoids the high interest rate, but is that what really happens? It’s really their partner, Synchrony, that takes on the risk so why not? Amazon has nothing to lose here.
Interesting point of view, David. Could this perhaps be an early, veiled attempt to begin serving consumers who struggle to shop with non-cash tenders?
Some will see this as a way to make money with high interest rates. Others will recognize there is a cost associated with taking on a credit risk, which is why the “deposit” and the higher rate is necessary. And, then others will see that Amazon is working on building another group of customers that they currently don’t have access to. I think that’s the bigger play: more Prime members.
This is very reminiscent of how Sears (and Montgomery Ward) built its relationship with younger customers just starting out decades ago. Not only do you potentially acquire new customers with high LTV at a comparatively low cost, you deal with a real point of friction. Seems like a very sensible idea.
Several bad credit consumers may find the Amazon Credit Builder card appealing, as it seems like a compelling way to improve their credit. However, it may back-fire on some consumers that can’t afford to pay-off the total balance each month. With a steep interest rate of 28.24% on outstanding balances, consumers that carry a balance will actually lower their credit score and can potentially create more credit problems.
If Amazon truly wanted to help consumer with credit problems, they would offer a credit card program that has reasonable interest rates. However, the ultimate goal for Amazon seems to be interest income instead of expanding its base of loyal customers or “helping” consumers improve their credit scores.
Maybe they are taking a page from the old Sears book. Many companies like Sears and the department stores where the first place young people just starting out could begin to establish credit. These programs also had high interest rates and many retailers really mined the grey area between credit worthy folks and the deadbeats and made a tidy profit. It did allow many of us, including me, to establish credit coming out of school so let’s hope they are being somewhat altruistic.
As a former associate used to advise me, “Can’t hurt … Might HELP!”
This is a credit card leveraging Amazon. It is not embracing Amazon shoppers, since prime members cannot use it to their advantage and use it for their purchases from Amazon. Why would Amazon embrace this when they are excluded from the purchases of their audience? Good or bad credit, Amazon wants their reach to grow and their audience to include as many wallets as possible. This product does not embrace this outlook. Excluding Amazon Prime or any Amazon member seems to defeat the entire purpose that Amazon has spent years building.