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Amazon will start letting people pay with cash because not everyone has credit cards

The new Amazon PayCode service is the company’s latest attempt to court Walmart shoppers.

Amazon CEO Jeff Bezos gesticulating while speaking onstage at a company event.
Amazon CEO Jeff Bezos.
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

When Amazon announced a new pay-with-cash option for its online shoppers on Wednesday, the name “Walmart” didn’t appear anywhere in its press release.

But the introduction of the new service in the US — called Amazon PayCode — is just the company’s latest attempt to appeal to lower-income shoppers in the US who have long turned to low-price retail chains like Walmart instead of Amazon.

With PayCode, online shoppers can complete an order on Amazon and then pay for that order in cash in the next 24 hours at one of 15,000 Western Union locations. The PayCode launch comes a few years after Amazon introduced Amazon Cash, which allowed shoppers to load money into their Amazon accounts by handing over cash at partnering brick-and-mortar stores including 7-Eleven, CVS, and GameStop before placing an order on Amazon.

What these moves have in common is a focus on cutting into the nearly 40 percent of in-person consumer transactions in the US that are still made with cash. And by doing so, Amazon could better appeal to the more than 8 million low-income households that do not have bank accounts, and thus no debit or bank-affiliated credit cards, according to a 2017 Federal Deposit Insurance Corporation survey.

Why is this important to Amazon? The average Amazon customer has a higher household income than the average Walmart in-store shopper by nearly $10,000, according to data from a recent Kantar Consulting ShopperScape survey. And the disparity is likely even greater for Amazon’s best customers: Amazon Prime members. Lower-income households use cash more often than those with higher incomes.

Since Amazon launched the Prime express shipping program in 2005, the membership service has been most popular with middle- and higher-income US households. Case in point: 60 percent of US households with income of at least $150,000 had Prime memberships as of 2016, according to research from Cowen and Company, compared with around 40 percent of households that made between $40,000 and $50,000 a year, and just 30 percent of those with earnings of less than $25,000.

But if Amazon wants Prime membership numbers to keep growing in the US — after all, the program is the company’s key competitive advantage over other retailers — it needs to find a way to appeal to those with less disposable income.

So in April of 2016, Amazon introduced a monthly payment option alternative for potential Prime members who couldn’t shell out the $99 annual fee in one shot; Amazon Cash followed in 2017.

Two months later, Amazon introduced a 45 percent discount to the Amazon Prime monthly fee for those shoppers who receive certain forms of government assistance; the service costs them just $5.99 a month. And in March of 2018, Amazon added Medicaid recipients to the group eligible for that discount.

It’s unclear how well any one of these initiatives has worked. But by early 2017, Amazon Prime membership growth in the US was highest for households making less than $50,000 a year, according to the most recent study by Robert W. Baird & Co.

Amazon PayCode has already launched in 19 other countries, including Chile, Costa Rica, Kenya, and Thailand. The obvious question upon launch in the US: If you’re going to go to a Western Union to pay for your Amazon order, wouldn’t you just buy the item at another local brick-and-mortar store and have it that day? Perhaps this is where the unmatched breadth of the Amazon product catalog makes a difference — at least for some purchases.

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