22 April 2018
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Bank of Amazon could woo 70 million US customers within five years

09 March 2018  |  22284 views  |  5 arrow on screen

Bain and Co, estimates that a banking service from Amazon could swell to more than 70 million US customer accounts within five years, equalling the size of the country's third largest bank, Wells Fargo.

The analysis by the firm's banking and payments lead Gerard du Toit and retail head Aaron Cheris, follows reports earlier this week that the e-commerce behemoth has begun talking to banks, including JPMorgan Chase and Capital One, about developing a checking account-style product for its millions of customers.

For Amazon, a banking tie-up would enable the firm to skirt regulatory barriers, but it may also act as a Trojan Horse, enabling the firm to save on interchange fees and move into other more lucrative financial products.

By making it easy for customers to pay right from their Amazon bank account instead of with their credit cards, Bain & Company estimates that Amazon could avoid more than a quarter of a billion dollars in annual interchange fees in the US alone.

The 70 million customer figure assumes that Amazon forges a financial relationship with up to half of its customer base, the same share of people who said in a recent Bain survey that they expect to buy a financial product from a major technology firm over the next five years.

States the consultancy: "Once Amazon has established a cobranded basic banking service, we expect the company to move steadily but surely into other financial products, including lending (both purchase financing and debt consolidation), mortgages, property and casualty insurance, wealth management (starting with a simple money market fund to hold larger balances), and term life insurance."

Bain points to the successs of e-commerce giants like Alibaba in China and Rakuten in Japan in penetrating banking strongholds, using their vast data sets to expand their brands into new markets and build strong financial relationships with customers.

As Amazon expands its banking reach, the greatest latent demand exists in countries such as India and Mexico, suggests Bain, where the banking experience, especially in branches, is time consuming and cumbersome and mobile banking is still nascent. Both of those countries are key secondary markets for Amazon, says the consultancy, and the company can be expected to expand in its other core markets, including the UK, Germany and Japan.

"For bank executives and board members, this is a watershed moment," suggest Bain. "Amazon’s entry takes the competition into a different league. Consumers’ expectations keep rising as people grow accustomed to simple, convenient digital channels perfected by digital natives such as Amazon. If banks don’t reorient their approach and radically accelerate their rate of progress, they will watch technology firms steadily poach their business. At first, it will be the unprofitable slice that no one wants. Then the rest of the pie."

Comments: (5)

Derek Corcoran
Derek Corcoran - Avoka - Broomfield | 09 March, 2018, 15:55

Part of the reason banking is challenging in the Mexico market is because the regulatory environment requires fingerprinting and background checks to happen in-person. Amazon isn't a panacea

I agree this is a fascinating (and highly predicted) development - but I don't believe Amazon wants to become a bank. The world doesn't need another bank. Amazon will continue to focus on giving customers what they want at the lowest possible price in a convenient fashion. Any relevant banking service will align to this ethos. 

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Vishnu Datta
Vishnu Datta - Edgeverve - Bangalore | 12 March, 2018, 08:52

Has Bain and Co., remotely even considered Paytm story from India. Started as mCommerce , now is a payments bank with 200+ million customer base overall and 20 million as customers of Paytm bank. To me this report seems quite half baked. Should have also considered why Payments banks were introduced in India and how this phenomenon is already in place.

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Roberto Garavaglia
Roberto Garavaglia - Innovative Payments Strategy Advisor - Milan | 12 March, 2018, 10:46

I’m not convinced about the final last sentence “At first, it will be the unprofitable slice that no one wants. Then the rest of the pie.”

In my opinion is just the opposite, as the profitable slice of banking business is firstly poached by such OTT like Amazon, then the rest of the pie would be easily left to the banks.

That’s also the reason why I really believe that Jeff Bezos’s creature will not become a Bank in the early coming steps.

 

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Philippe Guenet
Philippe Guenet - Henko - PURLEY | 12 March, 2018, 10:53

That was expected and it is not surprising that Amazon makes the first move. Also expected that they are looking to catch the engagement layer and relinquish banks to Utilities (commodity/low margins) in the process. Most banks are sitting ducks to change the tide of this movement.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 12 March, 2018, 12:09

There's no doubt that a checking account from a traditional bank has several friction hotspots. A company committed to superior CX like Amazon does have a great opportunity to take the CX of a checking account to the next level, with low hanging fruits in several areas e.g. (1) Frictionless account opening (2) Better transaction search (3) Improved traceability of payments. 

As for disruptive potential of Amazon's plans, it all depends on how Amazon plans to execute them: If it will acquire a banking license on its own, then it can disrupt other banks but, then, one bank disrupting another bank(s) is old news. OTOH, if Amazon is merely going to resell checking accounts of existing banks like JPMC, then, like SQUARE et al, Amazon will increase the reach of traditional banks and add to their revenues and profits instead of disrupting them.

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