Jeff Bezos and Jamie Dimon.
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Amazon has decided to renew a deal that allows 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 most coveted co-brand deals in the industry, a rare prize given the sheer scale of Amazon’s loyalty program with its estimated 150 million US members, according to people familiar with the talks.
While JPMorgan has 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, Synchrony and Citigroup were among the issuers involved in the discussions, and Mastercard had hoped to oust Visa as a payments network, said the people, who declined to be identified and spoke about the private process.
“This was a once-in-a-lifetime opportunity to break through Amazon and transform your card business,” said one of the people. “If Chase lost it, that would be the shot that would be heard in the payments world. Any winner would immediately gain credibility and open a new growth story for Wall Street.”
Credit card deals with popular brands like Amazon, Costco, and American Airlines are among the most competitive deals in the financial world. That’s because they instantly give the issuing bank a captive audience of millions of loyal customers who spend billions of dollars annually. The largest packages can account for a disproportionate share of an issuer’s business; American Express lost 10% of its cards in circulation when Citigroup won Costco’s card bid in 2015.
The card business is so important to banks that CEOs like JPMorgan’s Jamie Dimon and Citigroup’s Jane Fraser have been known to help process the transactions, the people said.
Tense conversations
Talks over the Amazon card included JPMorgan’s stance that it could abandon the two-decade partnership and sell its loan portfolio, Bloomberg reported in June. Loans from Amazon Prime customers held at the bank’s Chase division total about $20 billion, the sources said. This would start a tedious process of millions of customers switching to a new bank while ensuring that their cards would still work perfectly.
That may have been a negotiating tactic used by JPMorgan, because while Amazon has seen rapid growth during the pandemic as people have been forced to stay home, other segments that Chase cards are known for — hotels, restaurants, and entertainment — have fallen sharply back. That made Amazon even more important to the largest US bank by assets.
Despite their importance to banks and American consumers obsessed with maximizing card rewards, the contracts themselves are kept secret. Amazon required participants to sign non-disclosure agreements and conducted its own RFP, or request for proposal, for the deal, largely excluding outside consultants, one of the people said.
Known for making tough deals with partners, Amazon has pressured issuers to accept its terms, people said. This included maintaining the card’s high premium rate of 5% for purchases at Amazon.com and Whole Foods, while also diverting some of the bank’s lending revenue and some of the interchange fees that the bank would normally withhold, had to be refunded, she told people.
Longer offers
As major retailers have expanded their grip on banks over the past decade, forcing lenders to accept more onerous revenue-sharing terms and offer richer rewards, deals have been given longer tenure. What were typically five-year contracts have expanded to seven and 10-year contracts or even longer, according to industry participants, giving banks a better chance of making money off the cards. For example, Citigroup’s Costco deal effectively lasts a decade, two of the people said.
Several of the banks involved hoped they could oust JPMorgan for at least part of the deal, perhaps by being named alongside Chase as a secondary issuer. American Express and Synchrony have had other cards on Amazon, including small business and private label offerings. She and the other banks declined to comment on the story.
Payments network Mastercard felt an opening last year amid a dispute between Amazon and Visa over the interchange fees the e-commerce giant has to pay. Mastercard solicited interest from banks, including American Express, to see if they could join forces to oust Chase and Visa, one of the people said. Conveniently, Visa and Amazon reached a global agreement last month that allows 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 (then led by CEO Jamie Dimon) first signed the promising internet startup to a card deal. Bank One was acquired by JPMorgan two years later.
Dimon Bezos
The personal relationship between Dimon and Amazon founder Jeff Bezos goes back even further to the early days of Amazon. Dimon has said he even briefly considered joining Amazon before taking the job at Bank One. More recently, executives with Berkshire Hathaway formed a three-company joint venture called Haven that aimed to disrupt America’s healthcare system before dissolving the effort in 2021.
The companies’ latest deal means little will change for users of the popular Amazon Prime Rewards Visa Signature card. Prime members will continue to get 5% back on purchases at Amazon.com and Whole Foods — a top rate among rewards cards — as well as 2% at restaurants, gas stations, and drugstores, and 1% elsewhere.
In a brief statement to CNBC, Amazon Vice President Max Bardon said the company looks forward to “continuing our work with Chase and its technology and capabilities to bring this seamless payment option with additional benefits to Amazon customers.”
For its part, JPMorgan promoted the “multi-year” co-brand deal and said it was “incredibly proud” of its relationship with Amazon.
“As we look to the future, we look forward to continuing to bring new features to this product that cardholders love,” said Marianne Lake, co-CEO of Chase.