Through a partnership with Citigroup Inc., Amazon.com began extending credit to its customers recently by offering what the online merchant calls a "cardless" private-label account.
Rene M. Pelegero, Amazon's director of global payments, said the new payment option was meant to "complement" the cobranded Visa card it offers through NextCard Inc. (The four-year-old monoline issuer in San Francisco announced that it had put itself up for sale after admitting severe fraud losses.)
In the Amazon deal, Citibank owns all receivables for the accounts and conducts all underwriting and billing functions under Amazon's name.
"We are always looking for ways to lower (the fees) on a per-transaction basis," Pelegero said. "At the same time, we want to work with the associations to find ways of addressing some of the imbalances that we perceive to be in the industry."
For example, Amazon's fraud levels are nearly the same as those of brick-and-mortar businesses, but "we are charged the same fees and fee structure as adult entertainment Web sites," Pelegero said.
To encourage spending during the holiday season, Amazon will let customers who spend more than $200 to make no payments or finance charges for three months. The agreement between Amazon's financial services subsidiary and Citi Commerce Solutions marks a resolution for the Internet giant.
Over the past two years Amazon warned banks that if they failed to develop an Amazon-friendly e-payment mechanism, it would look for a nonbank partner. But with the recent flops of digital currencies, such as those offered by Flooz.com and Beenz.com, traditional forms of payment have regained favor online.
It is not clear whether NextCard's recent woes will affect its deal with Amazon, in which NextCard receives all card receivables in exchange for up to $150 million of fees paid to Amazon over five years. Amazon also purchased a 9.9% stake in NextCard, or 4.4 million shares.
So far, "nothing has changed in that agreement," a NextCard spokesman said.
