The credit card processing chain is quite complicated, with banks, card companies, ISPSs, processors and merchants all having fairly clearly delineated roles. A merchant - no matter how big - implementing the whole chain is unheard of.
Visa, MC and other cc companies care a lot more about their reputation than they'll even care about a company like this.
Much larger fish have been put on the bbq over less substantiated claims of fraud.
As far as I know they use GE as the issuing bank, they may have other deals in place.
As far as I know - but this may very well be wrong or at least out of date - amazon does not have a banking license and the network used is VISA.
This seems to confirm that:
I would guess Amazon have looked at replacing as much of the payment chain as they can and done the parts that are profitable to replace. But they have a long way to go before the enormous hassle of becoming a bank is going to be attractive and possible.