In This Article:
Amazon.com (NASDAQ: AMZN) announced it would offer a credit card to those with bad credit and credit services and electronic payment firms barely noticed. Visa (NYSE: V) shares closed recently at a new high as did MasterCard (NYSE:MA). But Amazon.com’s card issuer, Synchrony Financial (NYSE: SYF) fell on the news. Still, both Synchrony and Amazon stock stand to benefit from this initiative and shares for both companies will react positively as customers sign up for this credit card.
Source: Shutterstock
The rewards card, called Amazon Credit Builder, will target those who want to build their credit history. These include customers who either want to establish new credit or are recovering from a bad credit rating.
Amazon.com is no stranger to the credit card business. Two years ago, it offered a Visa card with 5% cash back. With this new card, Prime members get the 5% back on purchases.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Credit Builder also gives the cardholder the ability to track their credit score. The credit details are displayed on a TransUnion CreditView Dashboard at no charge. By showing score changes over time, Amazon is helping the cardholder learn how to improve the credit score. This removes the need to rely on Equifax Inc. (NYSE:EFX) and more importantly, the service has no extra costs.
Prime Subscriptions and Amazon Stock
The new credit offering gives customers another incentive to have an Amazon Prime subscription. But the online retailer offers bigger reasons to be a member. For the current second quarter, the company is working to turn its Prime free Two-Day Shipping into a free One-Day Shipping program.
This feat is possible because of the company’s back-end fulfillment and logistics network. Still, Amazon needs to invest in this area to achieve this same-day delivery goal. It plans to spend $800 million in the second quarter.
So, if one day Amazon brings One-Day shipping down to one or two-hour shipping, it will have a huge advantage over retailers like Target (NYSE:TGT) or Walmart (NYSE:WMT). In the last holiday season, Target could not offer more than getting online shoppers to drive to the store to physically pick-up the order.
But even though Walmart is planning to launch in-home grocery delivery in three cities this fall, the food business something Amazon will build through its Whole Foods division. For now, growing the Whole Foods business depends on developing the physical storefront experience.
Prime Subscriptions Grow
Just as Costco (NASDAQ:COST) enjoys high profit margins through membership fees, Amazon Prime is of strategic importance. Last year, more people signed up for Prime than any year before. The more time people spend watching videos and listening to music, the more they are likely to renew their membership year after year. Telling friends about the great service encourages more people to sign up.