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Amazon Courts Medicaid Recipients With Deep Prime Discount

By David Jones
Mar 8, 2018 2:55 PM PT

Amazon this week expanded its discounted Prime membership program, already available to EBT card holders, to include Medicaid recipients. Eligible customers can become Prime members for US$5.99 a month, less than half the regular $12.99 monthly fee.

The move -- another step in Amazon's efforts to reach underserved economic communities -- ratchets up its competition with Walmart.

Amazon provides customers with a link to authenticate their membership in eligible government assistance programs. It is not clear how the company has been working with the Department of Health and Human Services to verify the records.

Amazon Web Services last year hosted 68 million Medicaid records.

Checking In

The expansion of the discount program followed by just a couple of days reports that Amazon recently engaged in talks with JP Morgan Chase and other banks regarding the possibility of establishing a co-branded checking account program to provide limited banking access to customers.

Amazon previously has offered services targeting the unbanked population, including a stored value card called "Amazon Cash," which lets users load cash onto unlinked debit cards and then use them for purchases with Amazon and certain other retailers.

Customers can deposit funds into their stored value accounts by showing a barcode at a local retailer and presenting the cash.

Amazon's expansion is in part at least a competitive play to target the core market of rival Walmart, which is a favorite retailer with working class and low-income consumers, in part due to its reputation for offering lower prices on everything from household goods to groceries.

"Yes, Amazon and Walmart are at war, and so Amazon is going down-market to grab Walmart's core customer, even as Walmart attempts to go upmarket to grab some of Amazon's core market," observed Paula Rosenblum, managing partner at RSR Research.

Whether regulators ever would allow Amazon to offer banking services to customers is questionable, she told the E-Commerce Times, especially given Walmart's unsuccessful plan to enter the banking business a decade ago. That effort was crushed by consumer advocates and rival banks that feared Walmart would crush the competition, particularly small community banks that served working-class and low-income communities.

Amazon Prime already has locked up most of Amazon's upper-income customers, so the company must look elsewhere to expand its base, suggested Michael Levin, cofounder of Consumer Intelligence Research Partners.

Unbanked Customers

About 7 percent of the U.S. population is unbanked, representing a clear opportunity for Amazon to go after markets dominated by Walmart and Dollar General, noted Thad Petersen, senior analyst at the Aite Group.

"Anything that Amazon does to increase reach increases their opportunity to sell and compete more effectively with physical world retailers," he told the E-Commerce Times.

About 7 percent of the U.S. population was unbanked as of 2015, with no checking account in the household, while 20 percent was underbanked, meaning they had a checking account, but also used some other form of processing transactions, Petersen said, citing data from the FDIC.

A proprietary checking account would allow Amazon to lower its interchange costs, because it would not have to go through a Visa or MasterCard payment network to process transactions with those customers, he pointed out.

Increasing digital economy access to the underserved has been an issue for many years, as their basic needs to access food, medicine and household goods often have been complicated due to inability to write checks, use credit cards or borrow money.

The USDA has announced plans to conduct a two-year pilot program starting this summer to test whether SNAP recipients can use their cards to buy groceries, according to a government official who asked not be identified.

The program is designed to test both online ordering and payment, to see if the transactions can be processed safely and securely. Amazon, Walmart, Fresh Direct, ShopRite and other retailers are slated to participate in the pilot.

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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