Amazon and Whole Foods: A Glance Through the Payments Lens

Navigator Edition: June 2017
By: John Grund

Amazon’s recently announced acquisition of Whole Foods has set off a chain reaction of speculation on the end-game strategy of Amazon and the implications for competitors. Arguably, the food category is one of last segments to experience the full effect of Amazon and countless articles discuss how the Whole Foods acquisition could play out for other grocers. However, the downstream, tangential effects of the transaction are far-reaching and will sweep in payments stakeholders over time.

To level set, Amazon’s scale and reach is nearly as extensive in payments as in retail. Estimates suggest Amazon has over 310 million active customer accounts (which likely translates into just as many cards on file). In the U.S., Amazon markets its own branded credit cards issued in partnership with Chase (a Visa co-brand) and Synchrony (a private label card). These branded card programs have evolved and now include enhanced product options for Amazon Prime members. Amazon also markets non-Amazon credit cards through its Credit Card Marketplace portal, further exemplifying just how unique Amazon is when you consider the exclusive nature of other retail card partnerships. Finally, Amazon is a prolific destination for various “Pay with Points” arrangements (Chase, Citi, American Express and Discover cardholders can all redeem points at Amazon’s checkout) and Amazon gift cards are a popular redemption item for bank-based rewards programs. A more extensive array of Amazon’s payment assets/innovation can be found at

For purposes of this article, we walk through a series of thought-starters on how the Whole Foods acquisition could impact the payments ecosystem.

  1. Branded Credit Cards: On the surface, Whole Foods stores could be an incremental account acquisition channel for Amazon credit cards or, at a minimum, could be used to market the Amazon credit card. What would be more interesting and threatening to other grocers is any integration of Whole Foods into the Amazon credit card rewards program. Amazon’s Visa and Store Card products offer 5% rewards on Amazon spend for Prime members, which would be quite appealing within the grocery category, especially if Amazon alters the grocery pricing strategy for Whole Foods. (Bear in mind the current earn rate on grocery purchases on the Amazon Visa card is 1%.) Amazon is a creative force in leveraging its platform, especially Prime, to add new partners, services, and sources of customer value. Grocery has always been a challenging sector for traditional co-brand credit cards, but Amazon enters from a much different angle with more arrows in the quiver.
  2. Customer Experience: Amazon is obsessed with removing friction from the shopping experience and streamlining payments has been an area of focus for years. In fact, Amazon literally invented the 1-Click checkout concept. Amazon is now extending the utility of its payment solutions to third-party merchants with renewed investment in its Pay with Amazon service, which doubled in volume in 2016. Amazon could extend Pay with Amazon to, revisit its abandoned NFC mobile wallet project or, more ambitiously, roll out the recently-publicized Amazon Go cashierless checkout technology to Whole Foods. Granted, the Amazon Go concept is revolutionary and likely a long-term initiative. Regardless of the specific product, it is very clear that payments innovation is on Amazon’s R&D agenda and a critical element of their journey to re-invent the shopping experience.
  3. Acceptance: Like any major retailer, Amazon is focused on optimizing its payment acceptance cost and it is quite sophisticated in doing so given its scale (we estimate Amazon has 20-25% share of U.S. e-commerce). The addition of 460 Whole Foods stores and over $16 billion of largely card-present payment volume could trigger a fresh look at acceptance arrangements (e.g., payment methods, service providers, routing preferences, incentive deals, etc.). In any case, even without reinventing the wheel, integrating the Amazon and Whole Foods operating platforms and payment processing systems will be a complex, multi-year effort. If you are competing against Amazon, one might hope that Amazon’s evolution into a multi-channel retailer could actually slow some of its innovation.
  4. Gift Cards: Gift cards are an interesting area because they introduce a unique level of competitive sensitivity into the equation. “Gift card mall” endcaps managed by companies like Blackhawk Network and Incomm are prevalent in many grocers and other retailers. Gift card distribution has attractive economics and Amazon’s gift cards are quite popular. Time will tell if and how various stakeholders work through this newly developed sensitivity.
  5. New Product Development: Amazon continues to push forward on new payment products. In April 2017, the company introduced Amazon Cash, which lets consumers add value to their Amazon Balance by depositing cash with partner merchants including CVS. It would be natural for Whole Foods to become an Amazon Cash outlet in the near future. In addition, Amazon recently launched Prime Reload, which offers Prime members 2% rewards on bank transfer-funded reloads of their Amazon Balance. While not as rich as the 5% rewards on Amazon credit cards, this may be a compelling benefit for consumers that are averse to credit cards (or don’t qualify for credit) and could be influential if extended to Whole Foods purchases.
  6. Membership: The Prime membership program is not a payments program per se but it is so tightly integrated with Amazon’s pricing strategy and payment products that we have to wonder if Amazon might extend this model to Whole Foods. Will Whole Foods gain its own premium membership tier or will Prime members get access to discounts and exclusive products and experiences at Whole Foods? Amazon has used its payment products to create greater perceived value for its Prime program and we expect any membership offering at Whole Foods to be leveraged in a similar way.

While some of the possibilities outlined above are simple logical extensions of the existing payments environment, we expect Amazon to use the Whole Foods store footprint to experiment and innovate on a sustained basis. In other words, Amazon will raise its game when armed with a meaningful store footprint with access to card-present transactions, more customer data, point-of-sale technology, and more customers.

For more information, please contact John Grund, Managing Director,, specializing in Credit Card Issuing.

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