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 and Synchrony 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.
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 banks and American 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.
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 off 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’s personal relationship with Amazon founder Jeff Bezos goes back even further, to Amazon’s early days. Dimon even said he briefly entertained joining Amazon before taking the Bank One job. More recently, the executives formed a three-company joint venture with Berkshire Hathaway called Haven that aimed to disrupt American healthcare before disbanding the effort in 2021.
The companies’ latest agreement means that for users of the popular Amazon Prime Rewards Visa Signature card, little will change. Prime members will still earn 5% on Amazon.com and Whole Foods purchases — a top rate among rewards cards — as well as 2% at restaurants, gas stations and pharmacies, and 1% elsewhere.
In a brief statement provided to CNBC, Amazon Vice President Max Bardon said the company looks forward to “continuing our work with Chase and its technology and capabilities to enable this seamless and beneficial payment option for customers.” from Amazon”.
For its part, JPMorgan touted the “multi-year” co-brand deal and said it was “incredibly proud” of its relationship with Amazon.
“Looking ahead, we’re excited to continue to deliver new features to this product that will delight cardholders,” said Chase co-CEO Marianne Lake.