The Customer Effect

The ‘bank of Amazon’ could be a bigger threat to startups — not banks

  • Amazon reportedly is in talks with Capital One and JPMorgan Chase to offer checking accounts for customers
  • Amazon's partnerships with incumbents could squeeze the market for startups marketing themselves on customer experience and low fees
close

Email a Friend

The ‘bank of Amazon’ could be a bigger threat to startups — not banks

The “bank of Amazon” may be coming sooner than we think.

Amazon is reportedly in talks with Capital One and JPMorgan Chase to offer checking accounts. If these plans come to fruition, millions of customers could potentially switch their bank. This is an obvious threat to banks that want to control front-end customer relationships, but it’s a bigger challenge for banking startups that market themselves as alternatives to big banks because of easy customer experiences and lower fees — two things Amazon is known for in retail.

Amazon did not respond to a request for comment before deadline.

“It’s exciting to see a brand like Amazon, which is focusing on lowering transaction costs for goods and services and building a multi-service platform, move into banking — they really understand the consumer, the power of data and data science,” said Nicolas Parmaksizian, global head of Capco digital.

By contrast, banking startups, at least in North America, struggle with data access and brand recognition. An Amazon-bank partnership could be seen as a win-win, since Amazon and banks could benefit from huge trove of customer data that each entity has.

“A new banking startup is not going to have the same pool of data that some bank brands have,” Parmaksizian said. “If you combine an Amazon with a Capital One, you’re combining the amazing power of Amazon and Capital One’s data analytics, and that’s a challenging thing to compete with as a startup banking brand.”

From a branding perspective, Amazon has a unique connection to customers, who aren’t necessarily threatened by its encroachment into new verticals. A brand intimacy study carried out by branding consultancy MBLM ranked Amazon the third most intimate brand after Apple and Disney.

“They have tremendous strength across age, gender and income categories,” said Rina Plapler, partner at MBLM. “Startups market themselves as easier and cheaper; Amazon has already done that and has the brand recognition … this could remove any sort of opportunity [startups] have.”

Since Amazon has an estimated 80 million prime members, it’s possible that these customers would choose an Amazon banking experience over a big-bank offering, particularly among younger customers. Amazon already has toes in the water in payments, prepaid cards, debit cards, small business lending and consumer credit. A Cornerstone Advisors study found that 37 percent of young millennials and 46 percent of older millennials would open an Amazon account with a fee of $5 to $10 per month.

amazon-bank“Amazon Prime customers are generally using another financial institution product to pay for their purchases,” said Thad Peterson, senior analyst at Aite. “Amazon can simplify the process, add value to the customer, and increase incremental revenue from payments at the same time.”

When customers become more comfortable with an Amazon interface for banking, it could be concerning for banks, even if they hold the deposits.

“The danger is that the banks lose control of the customer at the front end,” said Forrester principal analyst Alyson Clarke. “They need to know more about their customers, partner, and curate a better experience for them.”

U.S. startup bank Chime, however, doesn’t see Amazon’s entry into banking as a threat. It sees it as a move that could amp up customer expectations, which could help more customers understand the value of alternatives to the big banks. Co-founder and CEO Chris Britt said it’s not a winner-take-all market, and Amazon’s entry could encourage more big-bank customers to explore alternatives.

“It validates that there will be new approaches to banking,” he said. “If Amazon offers a product that looks similar to ours and is as consumer friendly, that’s overall good for us, because it draws more attention to the fact that there will be an emerging set of new players that are real alternatives to traditional banks.”

0 comments on “The ‘bank of Amazon’ could be a bigger threat to startups — not banks”

The Customer Effect

It’s 2022 and FIs are still struggling to make their products accessible. Procure Access wants to change that.

  • Americans with disabilities have a total of $490 billion in disposable income. Yet financial services are struggling to meet accessibility requirements, even with basic tools like PDFs.
  • With Procure Access, everyone from Google to Fidelity Investments is getting involved to ensure accessibility is considered at the start of the procurement process.
Rabab Ahsan | September 14, 2022
Sponsored, The Customer Effect

Creating a hyper-personalized banking experience

  • To this day, a lot of financial institutions are using legacy systems that were written back in the '80s and remain the same.
  • Today's digital banking platforms and card services can offer hyper-personalized experiences to create a unique experience for each cardholder.
Zeta | August 25, 2022
The Customer Effect

The reversal of Roe v. Wade: Its impact on economic growth, financial wellbeing, and the financial services industry

  • Roe v. Wade has been overturned, after almost half a century -- what does that mean financially for America?
  • Here's how the ruling may hurt the state economies that will have a ripple effect throughout the economic system of the country.
Sara Khairi | August 02, 2022
Sponsored, The Customer Effect

Finance with a face: How personalization drives engagement, retention, and profitability

  • New technology allows for innovative companies to build banking products that cater to the specific needs of each individual.
  • Personalization is the key to meeting key product metrics and competing in this new landscape of embedded finance.
Q2 | March 14, 2022
Library, Modern Marketing, The Customer Effect

Tearsheet’s 2021 guide for marketers: Gens under the lens

  • We closed off last year with a thorough breakdown of the financial consumer profile of each of the generations.
  • The compiled guide for marketers is now available for download.
Tearsheet Editors | January 24, 2022
More Articles