Amazon Has a New Way for Customers to Pay

By Daniel B. Kline Markets Fool.com

One of the few negatives that online retailers must deal with is that it's not easy to shop with them if you don't have a credit or debit card. That's a problem Amazon (NASDAQ: AMZN) wants to solve with a new program it's offering. The online retailer has launched Amazon Cash, a way for people to directly add money into their Amazon account.

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It's essentially a variant on the existing option of funding your account using Amazon gift cards. Doing that, or paying with a credit card company gift card, were previously the only way for people lacking credit or debit cards (or those who simply don't want to share their account info with the online retailer) to shop on Amazon.com

Adding an Amazon gift card to your account is a somewhat tedious process where consumers must buy a card then type in a long string of numbers. Amazon Cash attempts to simplify that by creating a two-step method of adding cash to your account from what the company called "thousands of stores across the country." The steps are as follows:

  1. Request a barcode from Amazon that can be delivered to your phone as a text message or opened on a computer for printing.
  2. Bring the barcode into any of the company's partner locations and a cashier should be able to use it to add money directly into your Amazon account.

However much you add will appear directly in your gift card balance. There are no fees to use the service and any money added to your account is immediately available. Amazon allows for deposits between $15 and $500. Participating retailers include CVS, Speedway, Sheetz, D&W Fresh Market, Family Fare Supermarkets, and others with Amazon promising on Cash's frequently asked questions page that "more are coming soon."

Image source: Getty Images.

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Who is Amazon Cash for?

About 70% of Americans have a credit card -- roughly 174 million people out of 248 million adults -- according to Federal Reserve data released in 2015, CreditCards.com reported. As of 2015, there were 185 million debit card holders in the United States, according to Statista. The total population of card-free Americans is likely well below 25%.

Amazon Cash targets customers who either don't have have a credit or debit card or refuse to use one with the online retailer. The core audience for the Amazon product may be people who do not even have a bank account. About 7% of American households had no bank account of any kind, according to a 2015 study by the Federal Deposit Insurance Corporation (FDIC). That's approximately 9 million households that fall into the category the FDIC calls the "unbanked."

Another 19.9% of Americans are "underbanked," according to the FDIC, "meaning that the household had an account at an insured institution but also obtained financial services and products outside of the banking system." Not all unbanked and underbanked customers are lower income, but 57.4% of unbanked customers cited not having enough money to keep in an account as a reason they did not have one, according to the FDIC. In addition, about 28% of unbanked customers said they don't trust banks while a similar number said avoiding a bank gives them more privacy.

It's hard to know if people who have money, but don't trust banks, would want to give the online retailer the personal information required to open an Amazon account, but in theory Amazon Cash could appeal to them. The service might be especially useful for lower-income customers who lack a credit or debit card, but are looking to save money by buying from the online retailer.

This does not seem necessary

It's hard to know whether to view Amazon Cash as Amazon making its website accessible to more people or it coming up with a way to shake the last nickel out of the pockets of a customer base it could not previously reach all that easily. In general. this seems like a lot of effort for Amazon to make it slightly easier for consumers to get a gift card into their account.

It also feels like lower-income or financially strapped customers should be careful before tying up money in a fund that can only be spent on Amazon. On the positive side, Amazon does not charge any activation fee, which many non-reloadable credit-card-branded gift cards do.

Amazon has created a new way to pay that some consumers may find convenient, but the potential audience seems very limited. It's simply not that hard to buy an Amazon gift card and then type in the numbers to add it to your account. Amazon Cash solves a problem that doesn't really exist. It's a slightly better way to do something that's not all that big of a problem in the first place. It's hard to picture how that could result in meaningful added sales for the online retail leader.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.