Why Amazon won’t buy a bank in 2018

Forget the speculation about Amazon buying a bank next year. But don't count it out from adding banking to its near endless line of offerings. Regulatory capital requirements are high and there are big opportunities for tech companies and retailers to step in and improve their customer experience where financial incumbents fall short. For Amazon, providing financial services is just a means to an end: making more money by selling more things. Other retailers are still its main competition — not banks. “They’ve already got the cards and payments going on — and they’re not making money off that, they’re doing that because it enables people to get their goods faster,” said Alyson Clarke, a principal analyst at Forrester. “Small business lending to businesses on the platform helps them get up and running faster, it’s about supporting Amazon’s existing business model.” Plus, the Walmart story alone is enough of a turn-off for someone perhaps seeking to obtain a banking license. The longtime Amazon rival has tried becoming a bank a number of times: in 1999 it tried to buy Federal BankCentre, a one-branch thrift in Oklahoma; in 2006 it applied for a banking license to establish an industrial loan company in Utah. Eventually lawmakers and banking groups blocked future banking efforts by Walmart and tried to prohibit commercial companies from obtaining new ILC licenses. The Bank of Amazon is certainly a threat to incumbent banks, but the urgency to respond is now -- banks have already realized they aren’t competing against each other for customer experience anymore, they’re competing against other industries, particularly retail. Not if or when Amazon formally becomes a bank. “There was already a trend of bank card spend being consolidated inside apps and services, and we are seeing the downstream risk to banks who are aware of this trend but aren’t do anything to act on it,” said Cherian Abraham, senior business consultant at Experian. Retail and financial services will become even more intertwined than ever in 2018. To date, Amazon has a foot in payments, cash, debit cards, small business lending and consumer credit. More and more, the role of tech companies including Amazon is to give people different ways to interact with their money at a time when consumers funds are becoming more and more dispersed — across places like Venmo, PayPal, investment apps like Robinhood and Acorns, savings apps like Digit and Qapital. And make those financial transactions easy to use and perhaps even fun. As a result, banks are naturally taking fewer and fewer deposits from customers while losing their cross selling opportunities that have typically subsidized those accounts: credit cards and loans. They’re realizing in order to keep up with digital change they’ll have to become the invisible brand on the backend of fintech- and retail-powered experiences. “Financial services is a difficult category in which to create new products,” Diane Morais, Ally Bank’s president of consumer and commercial banking products, told Tearsheet earlier this month. “There’s not a lot of innovation that happens in the product, the experience, the application.”