Acquisition Amazon is rumoured to be pondering the acquisition of Capital One. Banking Technology contacted both parties for a comment but received no response.

Capital One, which pioneered the mass marketing of credit cards in the 1990s, is among the top ten bank holding companies in the US ranked by assets and deposits.

The bank has 800+ domestic branches, including around ten Capital One Café locations (coffee-shop style), and over 2,000 ATMs. It also conducts business in Canada and the UK.

In 2015, 62% of the company’s revenues were from credit cards, 28% was from consumer banking, and 10% was from commercial banking. Its total assets in 2015 stood at $334 billion.

Capital One is also one of the largest users of Amazon’s AWS cloud in the financial services space.

Capital One would bring Amazon a huge credit card portfolio, which seems to be a natural fit for its business.

Neil O’Brien, former director of digital banking at Santander US, comments on the possible scenario:

“Owning more of the card payments value chain provides Amazon opportunity for cost reduction and more extended data analytics about consumer behaviour.”

But that’s not all. Capital One is also a fully-fledged bank.

“Amazon is already a merchant, payment processor and a credit card issuer. With the acquisition of Capital One, Amazon would also become the acquirer – i.e. the merchant’s bank. It could offer this service to all of the merchants participating in its ecosystem.

“There has been speculation for a long time about a tech giant (GAFA – Google, Apple, Facebook, Amazon) buying a bank in the US, but the general sentiment was that banks were an undesirable target because of low margins and more importantly, high regulation.”

However, the recent regulatory developments are putting an acquisition of a bank in a new light.

Regulators in the US are taking interest in the large sums collectively kept on stored value cards and the associated mobile apps. “The money stored on these cards – and any similar stored value accounts – are effectively the same as bank deposits and as the total value now exceeds the deposits at smaller US banks, regulators are seeing a need to apply oversight,” O’Brien says.

“So, if regulation is going to be foisted on e-commerce companies anyway because of the high volume of ‘deposits’ they are holding, it makes sense to get ahead of the curve with a strategic acquisition of an entity that has the expertise to manage a regulated business.

“And if this goes ahead, it will start a trend for all the other ‘deposit’ holders out there.”

So, it would be much more than just buying a customer base: “a vertical integration play in card payments and the acquisition of a capability to manage the deposit base it has already accumulated”.

  • Rob 16 February, 2017 at 1443

    I think Brian may have gotten this wrong. Amazon is not a credit card issuer but instead a cobrand partner with Chase. Chase is the issuing bank for the Amazon credit card. Acquisition of Capital One would make them an issuer and would both save on cost of acceptance and provide lending revenue but would not make them a merchant acquirer. Capital One has a partnership with Vantiv to provide acquiring services. The only bank in the US that owns its own acquirer is Chase (assuming you don’t count US Bank and the ownership of elavon)

    It would be an interesting combination but it sounds like a rumor and I’m not sure Amazon or any retailer would want the risk and narrow margins of a bank.

    • SubiR 16 February, 2017 at 1726

      I see the point here as saying they would benefit in many ways from having a card issuer and an acquiring bank – even if the actual acquiring is outsourced to a partner as it usually is. But I agree with your point that the risk and margins make it seem an unlikely business for Amazon to get into.

    • SJ 16 February, 2017 at 2121

      Totally makes sense

    • dd 19 February, 2017 at 0436

      Fifth Third Bank owns Vantiv.

    • Alex 21 February, 2017 at 2032

      If Amazon acquires Capital One, it will become a bank holding company. It may expose the parent company to all the banking regulators (annual exams, risk assessments, frivolous sanctions, threat of being shut down or blocked from certain capital movements, and list can go on and on) – not sure that is the kind of exposure Amazon would be looking for. It is actually better to keep your banking partner at arm’s length.

    • Sean 13 July, 2017 at 0050

      Capital one no longer has a partnership with vantiv

  • Dan 17 February, 2017 at 1632

    Right, because Amazon is known for their distaste for low-margin businesses.

  • Jeremy 17 February, 2017 at 1649

    Very good holistic thinking in this article. Until now I would have said buy the cards business and sell the bank. But it seems there are now good reasons to keep it all together. Interesting.

  • Martin 17 February, 2017 at 2033

    Interesting connection, especially taking into account Capital One’s latest acquisition of Critical Stack who appear to focus on containerized environments. Amazon + Capital One + Critical Stack = a sort of play like eBay + PayPal?

  • Abigail 17 February, 2017 at 2249

    In this transaction Capitalone would be the beneficiary rather than Amazon. If at all it happens.

  • Michael 18 February, 2017 at 0406

    Rob both American Express and Discover have a closed loop meaning that both companies are the issuer, the acquirer and own and manage the network as well.

  • Pablo 21 February, 2017 at 0302

    American Express owns two banks, one for consumer savings and one for processing credit card receivables.

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