For some people in banking, the idea of Amazon entering the arena conjures a nightmare scenario. After all, Jeff Bezos’ company has morphed into a beast in the last decade, swallowing up everything from retail to television and to groceries with its recent $13.7 billion purchase of Whole Foods in August.
So before you head out for your frozen foods run, know this: Amazon’s algorithms already know your shopping habits—so of course the ability to cut out banks, PayPal and other payment systems makes a lot of sense if you’re an Amazon shareholder.
But in reality, much stands in the way of Amazon launching its own banking product or partnering with one of the Big Four banks.
Amazon checks out checking
It’s been widely reported that Amazon is in early talks with large banks about creating a “checking account-like” product to offer its customers. While some have speculated that such an offering would be an Amazon-branded checking account with a company such as JPMorgan Chase, the Wall Street Journal reported that the effort would focus on people who lack bank accounts and appeal to a younger audience.
But odds are Bezos and Co. may be thinking bigger than that.
Last month, a report by Bain & Company projected that an Amazon-run bank could gather more than 70 million customers in five years—rivaling Wells Fargo, the nation’s third-largest bank in assets at $1.95 trillion.
“Although many retail bankers and observers have pegged the nimble fintech startups as the likely disruptors, it has become clear that established technology firms pose a bigger threat,” authors Gerald du Toit and Aron Cheris say in the report.
“It’s clear the banking industry is in a period of transformation, leaving banks and other financial institutions ripe for disruption,” says Dave Kuchenski, director of business development, design and new technology incubation at Diebold Nixdorf. “If and when Amazon decides to enter the online banking space, they’re likely going to be the No. 1 competitor to other banks and financial institutions operating in the field.”
David Reiling, CEO of Sunrise Banks, says the banking industry is already being disrupted by digitalized technology.
“Amazon would fit, in my opinion, right into that,” he says. “You particularly think about Amazon as an online retailer, but they really are one of the world’s bigger technology companies. As a result of having both access to consumers directly and transactions, they have relationships with buyers and consumers everywhere. I think as a result they can be a huge disruptor in the banking industry.”
Amazon officials did not return a message seeking comment.
A leap of fate: Huge regulatory hurdles
To be sure, Amazon has a big opportunity if it wants to join the banking industry. But as today’s banking executives know, it takes lots of expertise—and regulatory know-how—to operate a bank in today’s environment.
Remember when Walmart wanted to open a bank? For nearly a decade the mega-retailer sought permission to establish its own bank and was soundly blocked by banking industry officials and watchdog groups. Banking officials objected on the grounds that Walmart could wipe out small community banks, much as it has decimated mom-and-pop retail stores nationwide. It finally dropped the effort in 2007 (though it subsequently provided consumer-banking services in Canada and Mexico).
Today’s Amazon is even bigger than Walmart and is the Arkansas corporation’s biggest retail threat to date. It’s a classic case of a big fish now being threatened by a bigger fish.
“I think that there’s more and more people who want to keep banking over on one side and commerce over on the other side,” says John Podvin, partner in the Dallas law office of Shapiro Bieging Barber Otteson.
Even a branded checking account with JPMorgan would create a lot of concern, Podvin says.
“The accounts would be JPMorgan accounts that would use Amazon branding, but make no mistake about it, those would be JPMorgan accounts,” he says. “Regulators would be protective of bank customers’ information and data.” And yet, Amazon “probably would want to get access to the information of the financial transactions that these checking accounts would generate.”
Data debacles: The Facebook problem
You know that mess that Mark Zuckerberg’s gotten himself into? The one with Cambridge Analytica, which gained private information on more than 87 million Facebook users (originally reported as 50 million)?
Well, that debacle is more than likely to give Congress and U.S. banking regulators pause when they consider anything having to do with Amazon, Podvin says—particularly when officials contemplate how Amazon can potentially use or bungle their customers’ information.
“Many members of Congress now want to get [Zuckerberg] in front of Congress and ask him, ‘What have you done with this privacy stuff with Facebook?’” Podvin says. “And huge companies like Walmart, Amazon and Facebook have all this information and that’s the basis of how they make money—especially Facebook and Amazon. They trade that information as part of marketing.”
But when you introduce banking into that, “there are regulators who protect the consumers’ information and that data,” Podvin notes.
What a bookseller can learn from bankers who wrote the book
There’s no doubt that today’s banks have a lot going for them. For all the buzz about wanting to attract younger customers who currently don’t even have checking accounts, the expertise of today’s banks can’t be overlooked, Kuchenski says.
“Amazon should be mindful of the strength and power that legacy banks and other financial institutions hold,” he says. “Banks are already well developed and have a wealth of experience across all areas of money management. So surely, some generations will be wary to move to a new, unestablished player in the space, despite backing from other institutions.”
The bottom line? Says Kuchenski: “It may be difficult to change this point of view—but it will be important for Amazon to understand this.”
Putting it together: A Blockbuster moment?
All in all, banks today should recognize that Amazon’s interest in the banking industry will be a lot more complicated than, say, gobbling up Whole Foods. But at the same time, the industry should take steps to prepare for new, creative players who may have new tools to attract clients.
Banks and financial institutions stand at a crossroads, Kuchenski says.
“Amazon likely recognizes this opportunity,” he believes. “It is crucial to use past failures across different industries as a cautionary tale. Take Blockbuster Video. Blockbuster didn’t realize that they had a user experience problem, and they didn’t do a good job at looking at themselves critically and fixing the problem. So when Netflix came along and solved those issues, they became obsolete.”
Likewise, banks “need to look at those pain points,” Kuchenski says. “Every user experience has a life cycle—and 2018 is the time where they must take a step back and address it.”
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Based in Maryland, Patrick Sanders is an assistant managing editor for U.S. News & World Report and formerly worked as an editor for The Associated Press and at newspapers in West Virginia, Connecticut, Pennsylvania and Indiana.
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