If nearly every banking executive knows just one thing about Amazon founder/CEO Jeff Bezos, it’s this: He’s relentless. Literally.
Before settling on “Amazon,” Bezos wanted badly to name his nascent ecommerce site “Relentless.” While talked out of the idea, he still has a clear fondness for it. Go ahead: Click on relentless.com or enter it into your web browser. See where it takes you.
Now worth an estimated $137.6 billion—more than the GDP of Kuwait, Morocco or Ukraine—Bezos is the world’s richest man. He can act as relentless as he wants. No one questions this. Rather, folks in the financial services c-suites wonder: Just what happens if Amazon decides to enter the banking sphere?
For all the times this question gets asked, 2019 holds the potential to reveal at least a partial answer.
In late October, Amazon announced the launch of the Amazon Business American Express card. Score one for Bezos—a big one—as the card targets a market banks still haven’t figured out how to fully serve: U.S. small businesses. What’s more, the card offers rewards for Amazon Prime members, which is a lot more exciting than getting a free toaster for opening an account (though you could always snag one online with your Prime perks).
Meanwhile, reports continue to swirl that Amazon may partner with JP Morgan to offer checking accounts; the Wall Street Journal reported in March that the two parties entered into initial discussions. So it’s not a matter of if—or when—Amazon will push the boundaries of traditional banking, according to banking experts.
Says Joe Salesky, CEO of CRMNEXT: “Amazon is already here.”
Bank victories at the branch level
So what should banks do to keep up with Amazon, let alone compete? While the sky may be the limit for the ecommerce giant, the sky certainly isn’t falling for banks. In fact, the key to thriving could well involve some back-to-future alchemy.
“We’ve helped large organizations trounce them in highly competitive markets,” says Salesky, a recent guest on the BAI Banking Strategies podcast. “The key is to do what Amazon does poorly. It’s terrific at digital commerce but not at collaborative finance at the branch level.”
He points to JPMorgan Chase’s decision to open 400 new branches in next five years. “Human-to-human experience is still the killer app,” Salesky says.
He also predicts that sometime in the next three years, “We’ll see an Amazon credit union like Navy Federal. It’ll be a separate entity with Amazon Prime membership; they’ll bring Prime members high-level services.”
Rick Muskus Jr., president of Patriot Bank, agrees about the human element.
He points out that old-fashioned human connection is definitely in style with millennials. This demographic will need a trusted human advisor at some point—and you can’t buy that through Amazon recommendations.
That is true whether or they realize it or not. “They may learn [that] the hard way,” he says, adding with a laugh: “I own a couple of them.”
In a recent BAI Banking Outlook survey, 49 percent of millennials surveyed prefer to have readily available access to branches.
Out innovate the innovator
A venture into banking is an obvious move for Amazon and other U.S. tech giants, says Rahul Singh, president and global head of financial services at HCL Technologies. “Of course, the Amazons, Apples, Googles and Facebooks of the world are going to step into the financial services space. They offer new environments in which customers want to transact.”
In fact, those companies own so much customer data that they can perhaps personalize financial services better than anyone else, he believes.
“Traditional banks must keep a close watch and develop counter measures,” Singh says.
Banks can and should up their digital game by addressing customer frustration. The seamless world of Amazon may not reflect well on traditional financial institutions, as BAI Banking Outlook research suggests. In all, 24 percent of respondents seek a better bank omnichannel experience. Even in person—the place where experts say banks can outgun ecommerce hopefuls—19 percent of those surveyed want branches transformed to create a better in-person experience.
Banks should also concentrate on breaking new ground, Singh says. He cites Turkey’s DenizBank as an example of creating innovative banking options for customers beyond anything Amazon would do next year.
A 2018 BAI Global Innovation Awards winner (Innovation in Marketing), DenizBank launched an interest-free payment card that farmers can use on purchases between the planting and harvesting seasons, their toughest months for cash flow. This comes in conjunction with a mobile app that provides customized real-time insights to farmers, who can send pictures and videos of their crop to agricultural experts and ask questions.
Singh notes that in a nation where 10 percent of the GDP comes from agriculture, “Helping farmers makes eminent sense.”
‘A lot of risk with regulators’
Here’s what also makes sense: Amazon can’t bulldoze its way into banking without paying attention to regulation and compliance. Sending laundry detergent via Prime is one thing; hewing to anti-money laundering regulations quite another.
Vincent Passione, CEO of LendKey, advises a healthy dose of skepticism when it comes to Amazon-level disruption in banking: a cautious, canary-in-the-coal-mine philosophy.
“Banks will never be on the bleeding edge of technology,” says Passione, a 34-year banking veteran. “There’s a lot of risk with regulators. They want it battle-tested.”
Thus banks want to see whether regulators will asphyxiate the unfortunate canaries. “If the cab industry had strong regulations,” he says, “I’m not sure Uber would be as successful as it is. In banking, we see trends. It’s happened before. The pattern repeats itself.”
If Amazon is ready to deal with regulations, it has to realize it’s not a part-time job, Passione contends.
“It requires a tremendous amount of knowledge,” he says. “It’s not something you learn in business school.” Thus Passione believes that instead of reinventing the banking wheel, Amazon will continue to partner with banks and financial institutions, leveraging its consumer track record.
“Amazon has created a phenomenal customer experience—so much so that customers think, ‘I really trust Amazon, now [I’ll try] banking,’” Passione says.
Fight the Amazon fear factor: Seven smart strategies
Here are seven takeaways for competing with (or partnering with) Amazon, in financial services and more:
- Truth in non-friction. Frictionless onboarding for banking customers is key.
- Partner up. “Scout for partners who either support outcome-based business models or will be happy to provide pay-per-use platforms,” Singh says. “These lower the need to invest in continuous management and modernization of the underlying technology.”
- Teach Personal Finance 101. Attract new customers through financial literacy, whether it’s to navigate a home loan or save money on car insurance.
- Stay human. Succeed where Amazon does poorly—in human interaction, Salesky says.
- Build trust. Customers allow Amazon to literally and figuratively enter their homes and cars. How can your institution earn such trust?
- Innovate. Last year, Amazon successfully patented a plan for underwater aquatic storage, basically a warehouse for packages deep in your nearby great lake, Passione says. What adventurous ideas has your bank had lately?
- Get personal. Whatsapp and Facebook Messenger allow users to make payments to friends and family, just as you would send them a picture, Singh explains. Amazon has its own wallet that has loyalty and gift cards.
Meanwhile, keep this in mind before you give in to fear: Amazon will enter 2019 with its own worries. They’ll come in the form of strong overseas competitors with financial services aspirations: Alibaba and Ant Financial. If Jeff Bezos can bet on anything, they’ll be relentless, too.
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Anne Brennan is a business writer whose credits include the Chicago Tribune, Crain's Chicago Business, TheFiscalTimes.com and MSN.