Bank of Amazon: How Amazon Uses Credit to Exploit Buyers and Sellers of Color
by Jessica Quiason, Senior Research Analyst
Since its inception, Jeff Bezos’ vision for Amazon is to become an all-consuming market the likes of which the world has never seen. Bezos once explained that he liked Amazon’s namesake because not only is the Amazon River the largest river in the world, but that it “blows all the other rivers away”. Amazon’s main goal since its beginning has been to become so large that it would be the only market people would ever need. In order to achieve that, Amazon executives knew they would have to reach each and every potential buyer and seller in the market. Amazon has designed financial products that specifically target consumers and sellers who ordinarily struggle to access the credit lines. But rather than create a more inclusive, democratic economy, the products have the effect of exploiting the very people that need the most protection. Amazon’s consumer-facing products are mainly for people who don’t have traditional bank accounts or any financial services at all (“underbanked” or “unbanked” consumers), the majority of whom are of color. Amazon’s business-facing products are part of a larger effort to drive more small businesses and minority-owned businesses onto its platform, however studies have shown that Amazon routinely uses seller data to undercut those same businesses once they are onboard. By targeting financial services to specific buyers and sellers, some of whom are of color, Amazon is able to exploit new profit centers while partnering with traditional, regulated banks to avoid being regulated themselves.
Earlier this month, Amazon announced it is adding a new “credit-builder” credit card to its current lineup. The card has many of the same cash back features for Amazon store purchases as their other credit cards, but this one is “secured” with a credit line only equal to the cash deposit the holder puts in. The card, offered in partnership with Synchrony Bank, is aimed at “putting credit in the hands of people in a responsible way” and is intended to capture 25 percent of the American population that is underbanked or unbanked, and the 11 percent of the population with low credit scores. In 2017, the FDIC identified that Black and Latinx households are by far more likely to be unbanked than other populations.
Synchrony Bank and Amazon executives claim this card will help people gain financial literacy, however this credit card has an unusually high interest rate and is structured in a way that allows for debt to accumulate quickly. Amazon’s credit-builder card comes with an interest rate that exceeds that of other secured cards: 28.24% versus a similar Discover card with cash back benefits at 25.24%. Amazon’s card also allows holders to carry a balance between billing cycles, meaning even if the credit card is backed by a security deposit, the credit card holder can carry a balance over time and can end up paying increasingly more in interest, plunging them further into debt. Amazon’s “credit builder” card preys on the country’s most financially vulnerable people and people of color to keep them in a cycle of insurmountable debt and undesirable lending status. By edging into the world of extending credit, Bezos has married commerce with banking, providing highly exploitative financial products but for the most part escaping being regulated like a traditional bank.
Amazon’s “credit builder” credit card is just one of the ways Amazon has designed financial products that appear benevolent but operate as traps for profit. Amazon touts its small business loans with Bank of America Merrill Lynch as proof that they do not seek to undercut smaller businesses but are actively helping them thrive. And they are constantly trying to grow the number of small businesses that sell on the platform, including minority and Black-owned small businesses. The tech giant uses the massive amounts of consumer and business data they have collected from transactions on their e-commerce site to underwrite invite-only loans for specific sellers. Without having to rely on credit ratings and other reports that capture just a portion of a business over long periods of time, Amazon can track exactly what a business sells, and how it performs compared with competitors as sales occur. This means Amazon can broaden their reach to businesses who previously struggled to attain credit with traditional banks.
Despite Amazon’s claims that these loans help bolster small businesses, Amazon constantly siphons business away from smaller third party sellers on the very platform they use to underwrite loans. Once third party sellers are on Amazon’s e-commerce site, Amazon uses its control of the search tool to track what customers want to purchase from third party sellers and then piggybacks off of that demand by issuing their own private-label version of those goods. So while Amazon bills itself as a friend to small businesses helping them expand their business, they turn right around and take that new business away as direct competitors with a full under-the-hood view of the activity of their competition.
Year after year, Amazon’s success continues to reach new heights: butting out competition, cornering new markets, and creating an ecosystem around its e-commerce platform that feeds into its dominance of our economic lives. Bezos has been constantly experimenting with new ways that expand Amazon’s market power — consumer credit and small business loans are just two examples. Curbing Amazon’s ability to design financial products that exploit financially vulnerable people, people of color, and small businesses will mean redefining what a financial actor looks like and how we hold them accountable in contributing to an equitable, democratic economy.