Balancing rewards and revenue: A look into Amazon Pay credit card's sustainable success strategy

Today’s fast-paced, digitally-savvy world demands convenience and ease of transactions. Credit cards serve just that purpose, providing a quick and easy method to conduct transactions, both online and offline.

Credit cards are extending their reach beyond the traditional demographic of high-income earners and towards a wider base.

In an exclusive interview with BT, Mayank Jain, Director of consumer credit and business lending at Amazon Pay, detailed this trend, highlighting that the shift is not confined to traditional credit cards only. Jain said, “Emerging solutions like UPI (Unified Payments Interface) and credit on UPI have started to revolutionise access to credit in India.”

However, the adoption rate of credit cards in India is strikingly low at less than 5 per cent. While digitalisation has certainly widened access to credit, a significant section of the population is yet to utilise the various financial tools that come with owning a credit card.

The journey towards credit card adoption and transformation in India will be lengthy, acknowledges Jain. He expresses optimism and excitement for the road ahead, citing the limitless potential the credit card industry holds in the face of the ongoing digital revolution. Edited excerpts: 

BT: Can you tell us what led to the increase in credit card usage?  

MJ: I would answer it in two ways: Factors impacting the supply side and the demand side. On the supply side, a more digitised and organised economy has made it easier for banks to underwrite, credit bureau coverage and reporting have also increased, and partnerships between commerce and financial institutions are leading to better value for customers. On the Demand side, higher optimism for the future leads to higher aspirations, higher affluence levels, and per capita income growth. And secondly, regulations have brought transparency and trust and have increased customers’ comfort in using credit. In the past decade, a significant shift has occurred in customer trust towards financial institutions and services, attributed to the efforts of Reserve Bank of India (RBI) and the institutions. This has resulted in remarkably low fraud and credit loss rates, fostering transparency and customer-centric regulations. As a result, customers now perceive financial processes as straightforward, knowing all charges, interest, and repayment terms. This has increased transparency and inherent trust, contributing to a two-sided effect of growing demand and supply, which has enhanced comfort in credit usage.

BT: As you said, you are present across all PIN codes. Are any specific demographics or groups driving the adoption of target cards in India? 

MJ: We cater to diverse customer segments with multiple credit products. In addition to co-branded credit cards for the mass affluent, we provide Buy Now Pay Later (BNPL), consumer durable loans, and EMIs. Collaborating with 25-30 bank and NBFC partners, we ensure credit access for those who may not qualify for credit cards. Our upcoming offerings encompass personal loans for diverse needs, even beyond Amazon, alongside business loans for our sellers. Each product serves distinct demographics to meet diverse customer requirements.

BT: What factors do you consider while providing customers with Amazon Pay credit cards? If it's just a clone of what we already have as a credit card from ICICI, how is Amazon's credit card different? Also, is there any AI program behind it? Could you let me know how you managed to do that? 

MJ: That's a great point, and in this specific case, it might have happened that they have a very good recent payment history. In lending products, the underwriting responsibility rests with the bank. They are the risk experts and have access to bureau data. By Collaborating closely with a very mature bank partner, ICICI, who has a strong risk mindset, we ensure effective risk management. Our aim is to provide co-branded cards to highly engaged customers, enhancing their relationship and value with us.

So, we offer it to our only highly engaged customers via positive selection, and we have observed over the past 4 years they exhibit a notably lower default rate. However, our partner bank takes care of the actual underwriting and risk management.

There is no AI program. We just, as I mentioned, try to make sure that our loyal and engaged customers have an option to apply. Ultimately, when they apply, the bank evaluates and sees their (credit) history, and we have seen a positive selection from that risk perspective that we are able to keep the risks very low.

BT: Can you provide an overview of the benefits and offerings of Amazon ICICI bank credit cards? And how does it help in enhancing customer experience? 

MJ: So then maybe I'll answer this question in 3 dimensions.

Customer Value Proposition: Amazon has actually pioneered the concept of unlimited cash back when we started in 2018. While we see many new offerings coming up in the recent past, those cash back offers still come with upper limits, but in the case of Amazon, it’s truly unlimited cash back.

Cash back: Our card offers 5% cash back to prime customers (3% to non-prime) on Amazon shopping, and also offers 2% cash back for every bill payment, movie tickets, and other everyday transactions you do via Amazon pay. A minimum of 1% cash back is offered even for offline transactions, setting it apart from competitors.

Affordable EMIs and no fees: The card stands out by providing 6 months of no-cost EMI options on Amazon purchases, enhancing affordability for customers. Additionally, the lifetime free feature eliminates worries about fees and milestones, ensuring a hassle-free experience. In fact, you get Rs 1500 worth of Signup rewards.

Recent Launch: Recently introduced 5% unlimited rewards on international flights, offering customers an amazing offer on top of the existing discount

BT: How can you give discounts to customers while paying operational charges to ICICI Bank for co-branding your Amazon Pay credit card? 

MJ: This (card) I would say this is a proper win-win proposition for the customer, the bank and Amazon. A program that has become the number one co-brand card in the country cannot reach this scale without it being sustainable. The way this works is if you are able to drive the (customer) preference to use the card as your top-of-the-wallet card (use it everywhere, not just Amazon), you can offer value sustainably. If it only becomes a store card, that you use it only for purchases on Amazon, then you cannot sustain this cash back.

BT: Okay. But that to you are giving it, you know it. Everything comes at a cost. Could you please let us know how you can provide it? 

MJ: Yeah. I'm giving 1%; see, the 1% is not above the cost. So, the merchant discount rate (MDR) is not 1%. It's slightly more than that for all credit cards. So, for every transaction that happens on Amazon, we are able to drive 3 or 4 transactions off Amazon. So, we have tried to become the customers' preferred card. We don't want to be the store card, and we have been able to drive that in a few ways. First, we are able to give great value for even off Amazon purchases. So, the customer always wants to use our card to purchase goods on Amazon to get discounts. Second, we have one of the highest activity rates on the card. It's one thing to issue 4.4 million cards, but another to ensure high usage customers every month. We have among the highest active rates every month, whether it's including on Amazon or off Amazon. So, once we have given a card, the card is working hard for us and hard for the ICICI bank. Which helps like then, we offer a very good EMI program. Up to 6 months, there is no interest, but then customers buy for 12 months, 18 months. There is an interest. So, that is the mystery behind us being able to afford such rewards. [The trend shows people normally take an EMI of 12 or 18 months on big-ticket-size products.]

Certainly, we've implemented some prudent measures in the program. Firstly, focusing on customers with higher overall spending levels, where the card is preferred for all purchases, not just 5%. This sustains reward points effectively. Secondly, we've been frugal about certain benefits. For example, we haven't introduced lounge access due to cost/value considerations. We collaborate closely with ICICI Bank to manage the cost-to-income ratio and ensure financial prudence. Unlike traditional credit cards with high customer acquisition costs, Amazon's broad reach and low acquisition expenses enable us to offer competitive cash back. This balance is maintained by reducing operational costs, managing acquisition expenses, and controlling loss rates.

BT: How can one repay their dues? Does your card get synced with the ICICI bank app? 

MJ: Yes, that's another very good point, and it looks like you know our card very well! So ICICI bank has a very good mobile banking app (iMobile) where customers can manage their card controls. We recently brought card controls and card management within the Amazon app.

BT: There are so many co-branded credit cards available. For instance, there are fuel-based, shopping-based, and travel-based, co-branded credit cards. So, how do you think Amazon pay credit card scores over them? And why should one keep only an Amazon Pay credit card? 

MJ: When designing the Amazon Pay card, we addressed significant challenges in the credit card experience. The credit card customer despite being a very well served customer of a bank has to go through the application process, which itself is cumbersome. So, existing credit card processes are cumbersome, with numerous steps and document uploads. Earning and redeeming points are convoluted, leading to confusion. For example, some category earns you 4 points, but it counts only for Rs 1, while some category earns you 20 points, but every point comes only for 10 paisa. This makes it very complicated. So, Amazon Pay has simplified the entire process through video KYC, and we are the first ones to do that. So that was very simple. Then the whole process of earning rewards is very transparent with no exclusions, and straightforward redemption into your Amazon Pay wallet. You can use anywhere for anything shopping, payments, bill payments, anywhere you can use it. This seamless approach, backed by the trust of the Amazon and ICICI brands, enhances customer experience, leading to higher application and completion rates reflecting our customer-centric focus and trust.

BT: With which network do you have a tie-up? Is it a Visa card, Mastercard or a RuPay card? And secondly, can we use it internationally? 

MJ: Absolutely, you can use it internationally. In fact, from time to time we have campaigns where you can earn additional rewards when you use it for your international transactions. So, we started 5 years ago, and it's a visa co-branded card with ICICI Bank.

BT: So why not enhance the trust and make it a RuPay Card? 

MJ: We are constantly trying to figure out how to enhance our customers' value. That's the aim. And whatever options help us do that we are always evaluating so to your question we are always trying to make sure that customer gets the best value.

BT: So, how do you see the role of regulations and compliances in your business, especially with that respect for digital lending? 

MJ: In India, the growth of digital payments, especially credit, is attributed to customer trust in regulatory protection. Regulations have positively shaped the landscape, making it customer-centric and transparent. So, I think the role of regulations in India has been very positive. Being a customer-centric company, we welcome some of these steps. Digital lending has helped customers with very transparent about interest, fees, and repayment periods. So, because of our customer-centric regulations, we have the lowest fraud rates in the world because we have a 2-factor authentication which has safeguarded the customers' interest and has made them more comfortable to use it, even older generations. So, digital lending regulations have increased the transparency beyond credit cards to other products, fostering customer confidence. So, regulations are super welcome, and we at Amazon embrace all regulations in letter and spirit in emphasising full customer KYC, transparent terms, and effective communication for informed choices.

Additionally, we're developing a co-brand card for small businesses to enhance value and opportunities for this segment further.