The Strategy Behind Amazon Pay’s Push Into ‘Buy Now, Pay Later’

Even Amazon can’t ignore the popularity of buy now, pay later. The retail giant — which is also a powerhouse in payments — is setting up two different buy now, pay later programs for retailers using Amazon Pay on their websites. The moves set Amazon up ahead of the traditional holiday shopping season with multiple bets in what is a growing sector of payments. One chip is on a fintech BNPL specialist, Affirm, and the other is on the nation's biggest bank, JPMorgan Chase.

Amazon Pay is doubling down on offering buy now, pay later to other retailers who use its payments service on their own sites.

It has rolled out two different BNPL programs to serve different customer segments, ahead of the holiday season.

The first allows retailers using Amazon Pay to offer their shoppers the buy now, pay later services of Affirm. Shoppers will see this as an option at checkout when they make a qualifying purchase. They can choose from “pay in four” BNPL plans that have a 0% interest rate or longer monthly payment installment plans that generally carry a flat interest rate.

The second program is for those who have Prime Visa and Amazon Visa credit cards.

The cards, issued by JPMorgan Chase, already offer favorable benefits when used for purchases on and at Amazon-owned retail stores such as Whole Foods. Now these cardholders will have a new BNPL option that lets them avoid interest charges.

Amazon Pay and Chase made a joint announcement in mid-August that cardholders would be able to set up 0% APR monthly payment plans of six or 12 months at the retailers participating in Amazon Pay under a program called Equal Pay.

Amazon Pay’s BNPL Strategy Will Have a Ripple Effect

These moves offer more validation that buy now, pay later is not only here to stay, but that it is going to move from a nice-to-have feature to a consumer expectation on retailer sites, says Jacqueline White, president of i2c and a veteran payment executive.

“Whatever Amazon does everybody is going to take notice. When a big player like Amazon Pay makes a move in this direction, it sends out a ripple through the entire payments ecosystem.”

— Jacqueline White, i2c

She predicts that other providers are going to scramble to come up with BNPL and installment payment options in time for the holiday season.

It’s a timely strategy not just because of the holiday, but because of the financial strain many consumers feel. “This is a reflection on the economy and where a lot of people are from an income perspective, especially given where rates have gone over the past several months,” White says.

The fact that Amazon picked two partners to implement this BNPL strategy is consistent with its past practices. The megaretailer has had multiple branded card providers for years. While JPMorgan Chase partners with Amazon on the Prime Visa and the Amazon Visa, the retailer also works with Synchrony to offer other cards, including the Amazon Store Card and a selection of Amazon-branded secured cards. (The Synchrony Amazon Store Card offers monthly 0% payment plans over six and 12 months on eligible purchases and 24 months on select qualifying purchases.)

One unusual aspect to the latest Amazon moves is that its partners in this case are so different from each other: Affirm is a fintech provider, while JPMorgan Chase is the country’s largest bank and one of the leading payment companies. Under both programs, the cardholder must meet minimum purchase requirements to use an installment payment plan.

Amazon announced the deal with Affirm in June, followed by the one with JPMorgan Chase in August.

And both follow a deal struck with Citibank in April. So, in a sense, you could say that Amazon Pay is tripling down on adding BNPL options.

Amazon agreed to make Citi Flex Pay — which is Citi’s version of buy now, pay later — available to consumers who click on the Amazon Pay button to check out at participating retailers.

Citi Flex Pay is a feature available only to eligible Citi credit card customers. Any installment purchase is deducted from the cardholder’s approved credit line (the same approach JPMorgan Chase uses with its cards).

Citi has been offering BNPL choices on since 2020.

Read More: A Bright Future for BNPL Is in the (Bank) Cards

Who Covers the Cost of Installment Plans with 0% Interest?

JPMorgan Chase’s involvement continues its recent trend toward utilizing the credit line on its cards in additional ways. In the case of the Amazon partnership, any amount a cardholder opts to pay via an installment program is deducted from the total credit line that had been available on the card. As monthly payments are made on a timely basis, the credit line is replenished by a corresponding amount.

Another wrinkle for cardholders is that there’s a tradeoff. The installment plans that are being offered carry a 0% interest rate, a common feature for “traditional” merchant-based BNPL programs. Amazon says this is an ongoing promotional rate. While merchant-based programs’ interest costs are generally absorbed by the sellers, neither Amazon nor Chase will collect any fees from merchants to fund the 0% offer.

Amazon makes clear that any purchase put into the Equal Pay plan is ineligible for cash back rewards. Generally, for the Amazon Prime card this is 1% on any purchase, except for certain categories, like gas purchases and transit charges, which earn 2%.

This aligns with what Amazon has done previously.

Prior to launching this new Amazon Pay program — which makes installment plans available for purchases on other retailers’ sites — such plans had been available exclusively on Amazon purchases. Amazon Prime cardholders taking advantage of 0% installment plans to pay for Amazon purchases also have to give up any cash back rewards they would have received from using the card. The Amazon Prime card pays unlimited cash back of 5% on, Whole Foods, and Amazon Fresh purchases.

Payments veteran Richard Crone says he believes — based on what he knows about industry practices — that JPMorgan Chase uses the Visa Installments service for its cards. He says this is lucrative for the bank and for Amazon because that means the purchases are processed at the highest non-published interchange rate, from the merchants’ perspective.

Read More: Apple Pay Later, Tech Giant’s BNPL Entry, Off to Strong Start

Buy Now, Pay Later Helps Fuel PayPal’s Growth

None of this is happening in a vacuum, of course.

Crone notes that Amazon Pay can muster approximately 300 million Prime customers who might shop at participating retailers. But for comparison, there are 435 million active users of PayPal.

From the retailers’ perspective, both PayPal and Amazon Pay are a means to an end — reducing friction with payments in order to facilitate increased sales.

“If you were an ecommerce merchant and wanted to increase basket size, decrease cart abandonment rates, and increase purchase completion rates, you had PayPal — that is its value proposition. And that’s the same value proposition for adding Amazon Pay to a retailer’s checkout.”

— Richard Crone, payments consultant

Amazon Pay is available during checkout at tens of thousands of retail websites, according to a company announcement.

As for PayPal, more than 30 million merchants accept it, including 80% of the top 1,500 internet retailers, Dan Schulman, the company’s outgoing president and chief executive, said during a second-quarter earnings briefing.

“Don’t forget that PayPal is the biggest player in buy now, pay later,” says Crone.

The payments giant offers both 0% interest pay-in-four plans and monthly installment plans of six, 12 and 24 months at a range of interest rates depending on creditworthiness. It introduced the pay-in-four option in August 2020 and experienced a surge of use the following holiday season.

The popularity of BNPL has only increased since then. When asked about areas of growth during the second-quarter earnings call, Gabrielle Rabinovitch, PayPal’s senior vice president for corporate finance and investor relations, described buy now, pay later as its largest source of credit growth.

PayPal’s Schulman noted that the company was seeing an increase of 25% to 30% in first-time BNPL users. (Schulman is retiring, and Alex Chriss, an Intuit executive, is expected to replace him at PayPal’s helm in late September.)

Read More:

How Will BNPL Players React to Amazon Pay?

Clearly, Amazon wants in on the action.

“Amazon wants to seize a larger market share in the BNPL segment,” Crone says, adding that Amazon Pay’s reach is significant enough to help drive a shift in purchasing behavior. With additional flexibility available more broadly, consumers might make larger or more frequent purchases, he says.

Another potential ripple effect is that BNPL providers may be forced to get more innovative with their programs, to create options that Amazon Pay isn’t offering, as a competitive move, Crone says.

He considers JPMorgan Chase as a player to watch in particular. This partnership underscores “the bank’s intention to diversify its service and capture the online retail payment market,” he says.

See all of our latest coverage of payments trends.

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