SAG_Amazon_Tentacles_FS_Twitter_MEME_Sep18We are in the midst of a convergence of banking and technology companies; one where we are seeing companies like Amazon sink their tentacles deeper and deeper into financial services. 

We’ve seen J.P. Morgan Chase declare that it is a technology company that provides financial services:  “Mobile first – digital everything.” And, at the other end of the spectrum (as I described in my blog a year ago) big tech – in particular Amazon – is sending tentacles deeper and deeper into financial services. 

Here are some of the lesser-known ways in which Amazon is active in financial services:

  • Accepting cash deposits from US, Canadian & British customers online or in physical locations with Amazon Cash
  • Accepting cash deposits on the doorsteps of Indian customers with Amazon Pay
  • Selling life, health and general insurance with Amazon Protect
  • Offering lines of credit to merchants with Amazon Lending
  • Offering co-branded credit cards

Amazon’s goal is to provide service from A to Z, so what will it (and other big tech) do next in financial services? Here are my predictions:

  1. Amazon will offer mortgages. This is a no-brainer.  Amazon already knows what the homes of some 300 million Amazon customers globally and over 80 million Prime customers look like!  It knows about our credit worthiness through Amazon account history, and has deep insights into our lifestyle - right down to what customers eat from Whole Foods.  And it has hired a head of a mortgage division.
  2. Amazon will accelerate push into global banking. In many ways, Amazon probably knows financial services companies’ customers better than they do.  Now it needs first-hand financial insight into their customers to have complete customer entanglement across its ecosystem of spending from merchants to customer.  This logically includes banking (payments, loans, current accounts, savings accounts, credit cards) for consumers and merchants.  There is significant cost savings incentive for Amazon to act, too:  Forrester estimates that Amazon pays card issuers $1 billion/year in credit card fees.   
  3. Some banks will choose to be financial services “plumbers.” Some banks will come to the realization that they can’t do everything -- operational excellence, integrated risk management, as well as differentiated, personalized customer experience.  They will choose to focus on efficiency and risk management and white-label their offerings to others – like Amazon – which will incorporate them into its own ecosystem.  
  4. Amazon will partner with banks – not buy them. Very soon, Amazon will offer current accounts in partnership with large banks – but without seeking a banking license itself.  It had been rumored a year ago that it would buy a bank, but it doesn’t need to because it will has banking partners anxious to collaborate, to whom they can outsource the regulatory burden.
  5. Amazon will extend into wealth management and insurance. Amazon’s counterpart in China – Alibaba – is the largest money-market fund manager in the world, with at least $95 billion in assets reported earlier this year.  This fund is a repository for leftover cash from online spending.   The further Amazon extends its Cash and Pay products, the most cash it will collect, and the more that will have to be managed.  It makes sense to scale this internally and offer it externally as well, through savings accounts and money market funds. In health insurance, it is partnering with JPMc and Berkshire Hathaway to explore health care system alternatives in the US. 

So what’s a bank to do in the face of this enormous threat? 

In addition to focusing on enterprise architecture and operational excellence in the back end, and on differentiated customer experience in the front end, and integrated risk management overall, think creatively about how your FSI can enhance its value by developing its own ecosystem and enhancing and differentiate the value you deliver by collaborating with partners. 

Read “Open Banking, APIs, and Financial Services Ecosystems:  The Future of Banking” by Aite Group by clicking below. 

(Full disclosure – I’m an Amazon shareholder, and shareholder of multiple banks, too).

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