Amazon's move into banking could make online shopping possible for everyone
Amazon's potential move into online banking may be more about reaching new customers than disrupting the financial industry, according to one Wall Street firm.
The Wall Street Journal reported Monday that the e-commerce giant is in early talks with financial institutions to build a "checking-account-like" product for its customers.
Bank of America Merrill Lynch reiterated its buy rating on Amazon shares, saying a new banking offering will spur more e-commerce sales, particularly with younger shoppers and lower-income consumers who don't have traditional bank accounts.
"We think Amazon's aim with expanding its financial offering is less about disrupting the financials sector and more about increasing engagement on its own marketplace," analyst Justin Post wrote in a note to clients Monday.
"While there may be some ability for Amazon to reduce the fees it pays to banks and payment processors by creating a closed-loop prepaid debit card type of product, we think that Amazon's primary motivation would be to attract younger and underbanked customers that otherwise would find it difficult to shop online."
The company's stock closed up 0.9 per cent Tuesday.
Post reaffirmed his $1,650 price target for Amazon shares, representing 8 per cent upside to Monday's close.
He said Amazon Prime's penetration of lower-income households making less than $50,000 per year rose to 56 per cent in December from 51 per cent in the second quarter of 2017.
"Like Prime, Amazon may want to offer checking incentives to drive customer lock in and higher long-term retail sales," the analyst wrote.
"If Amazon's new product does come to fruition, Amazon-owned Whole Foods Market could be a logical place to test bricks-and-mortar merchant acceptance."
This article was first published on CNBC