The Customer Effect

How much of a threat to finance is a ‘Bank of Amazon’?

  • "Amazon is essentially industry agnostic, which means they're not in the business of selling you anything in particular."
  • "It’s not going to be taking over the other legacy institutions or non-bank startups that do financial services."
How much of a threat to finance is a ‘Bank of Amazon’?

It seems like there’s nothing Amazon can’t do: Cloud computing services, music and video streaming, payments, credit cards, small business lending.

“They’re the everything store in the truest sense of the word,” Anand Sanwal, CEO of CB Insights said at its Future of Fintech conference in New York this week. “Amazon is on a tear. Just the rumor of them entering your space will send your stock price down,” as evidenced by the way grocer stock prices fell following the announcement that Amazon is acquiring Whole Foods.

The idea of a “Bank of Amazon” was the first of 10 trends to watch in financial services over the next year, Sanwal said at the event.

One big reason: Amazon knows how to keep people happy. CB Insights data found 86 percent customer satisfaction at Amazon, compared to Citi (82 percent), Capital One (80 percent), “all banks” (80 percent), TD Bank (79 percent), and Bank of America and Chase (each 75 percent). Studies show most millennials would rather bank with the Amazons of the world, Facebook and Google included, than their existing banks.

“Their ambition is unmatched in terms of what they can do and they play the long game,” he said. According to an Amazon patent from 2004, “they’ve been thinking of financial services either how it reduces friction in their own purchasing process or how to own some more of that value chain over time.”

But even if customers begin engaging more with Amazon through financial services, it’s not clear how much of a real threat it is to legacy financial institutions. We asked attendees at Future of Fintech: Are Amazon’s moves in financial services as threatening as they sound?

YI Lingzhi Nancy, cofounder and chief operating officer, Standard Financial Inclusion
Amazon is more like Ali Baba now in China. It has its own ecosystem and does lending to small businesses in their ecosystem as well. I will say Amazon will have their part of the market in the U.S. if they continue doing this because they have such a large base. But like Ali Baba in China, it’s not going to be taking over the other legacy institutions or non-bank startups that do financial services. At the end of the day, financial services are high-touch businesses — lending is not a business that’s just about cold data services, it requires face-to-face interaction and trust in people at the institution; it’s social science as well as data science — and you need more personal engagement with customers apart from interaction in commerce.

Jaclyn Selby, researcher and tech startup advisor, Stanford University
Banks should be terrified of Amazon because of one word: convergence. Amazon is essentially industry agnostic, which means they’re not in the business of selling you anything in particular; their entire model focuses on reducing transaction costs around the exchange of all goods and services. Platforms in finance have to be incredibly robust; they have to operate seamlessly at scale. And they have to be secure in an era of huge anxiety around cybersecurity. Given these hurdles, I think the banks will recognize Amazon is a challenger. They’ll lean on customer loyalty (and pit that against Amazon’s wealth of customer data). It’ll be interesting to see how it shakes out.

Sardor Umarov, partner at SRG, a hotel and hospitality group in Memphis
We would go out of our way to upgrade our terminals at our hotel to accept Amazon Pay. It would be a natural fit for Amazon to get into financial services. They’ve got the money. I would switch to the “Bank of Amazon.” I purchase a lot from Amazon, it’s convenient, personalized. It has a much higher customer satisfaction than any of the banks.

Former employee of a top four U.S. bank, now at a data company
It’s opening up new opportunities, forcing current incumbents to think a little bit more about how they can continue to offer value in products and new products to service their consumers. At the end of the day, whether it’s a bank or a fintech company, the goal is to provide end value to the consumer. If you’re not providing value, historically a lot of financial firms have been able to rely on the fact that there’s a lot of lock-in; users don’t leave financial institutions — it’s really hard to move all of that information over. As technology makes that easier, it becomes easier to create new products, offer new solutions and facilitate that value of exchange to move faster. It forces institutions to think and more be more proactive about the products they offer. There is a threat finally that there will new solutions coming to market that are providing new value added products to consumers, but it forces these large incumbents to start thinking about how to rethink their solutions and, if they can’t, how they can partner up or acquire fintech companies.

Investment banker at a top four U.S. bank
Amazon is already doing some stuff in payments, credit cards, lending… But there’s not much more that’s interesting stuff for them. If the Whole Foods deal is an entry point to brick-and-mortar for them, Amazon will be focused there for next five to 10 years. They obviously want to do distribution and end-point and that itself is an end game. They want to own commerce globally before they worry about banks, they want to be the Amazon of the world, not just of the U.S.

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