Amazon could become the third-biggest US bank if it wants to: Bain study
Amazon could become the third-biggest US bank if it wants
to: Bain study
Bain writes that Amazon's banking services could grow to
more than 70 million U.S. consumer relationships over roughly five years,
rivaling Wells Fargo.
Amazon could evade more than $250,000,000 in credit card
interchange fees every year if it finds a bank willing to partner.
The Bain report finds one-quarter of those using voice
assistants like Amazon's Alexa would consider using them for everyday banking.
By Thomas Franck Published 4:23 PM ET Tue, 6 March 2018 CNBC.com
Amazon could rival the nation's big banks in as few as
five years, capitalizing off its digital prowess and massive consumer base,
according to a Bain & Company report.
"We could imagine Amazon's banking services growing
to more than 70 million U.S. consumer relationships over the next five years or
so — the same as Wells Fargo, the third-largest bank in the US.," wrote
Bain's Gerard du Toit and Aaron Cheris. "Although many retail bankers and
observers have pegged the nimble fintech start-ups as the likely disrupters, it
has become clear that established technology firms pose a bigger threat."
Pushing customers toward a co-branded banking account
also allows Amazon to cut down on transaction costs, Bain said.
Amazon could – according to Bain calculations – avoid
more than $250,000,000 in credit card interchange fees every year if finds a
bank willing to partner on checking accounts.
The e-commerce giant is in early talks with financial
institutions including J.P. Morgan Chase. The project is aimed at younger
customers and those without banking accounts, The Wall Street Journal reported
Monday. That focus on a younger demographic may be key, Maureen Burns, partner
at Bain & Company and a leader in its financial services practice told
CNBC.
"[Amazon] can afford to go after this previously
unprofitable segment in part because it will be able to transform the economics
of banking," Burns explained. "Instead, Amazon could steer new
customers to 'just ask Alexa,' its voice assistant on the Echo device."
Traditional banks have "barely touched"
technologies that are becoming ubiquitous in the American economy, Bain found.
Nearly one-fifth of U.S. survey respondents use voice assistants at home while
one-quarter would consider using voice-controlled assistants for everyday
banking.
Amazon also has a big opportunity in banking services
given its immense data platform, a critical advantage over the small, nascent
fintech companies that struggle for name recognition, Bain said.
"Once Amazon has established a cobranded basic
banking service, we expect the company to move steadily but surely into other
financial products, including lending, mortgages, property and casualty
insurance, wealth management, and term life insurance," du Toit and Cheris
added. "Online shopping patterns already tell Amazon what it needs to know
about customers' life events, from getting married to having children to buying
a house, which will allow the company to offer relevant financial services
products."
Burns also cited Asian e-commerce giant Alibaba's success
in finance over the past few years as reason for optimism.
"In China, Alibaba has amassed the world's largest
money market fund, issued $96 billion of loans in five years … [and] sent $1.7
trillion in total payments through Alibaba's Alipay service last year, roughly
five times the global payment volume that flowed through PayPal," the
researchers explained.
To be sure, there is still time for Wall Street's banking
titans to prepare for a new, tech-savvy competitor, but only if they act.
Ditching the outdated model of decision-making by
committee and partnerships with the Googles, Facebooks or Microsofts of the
world could be good places to start, Bain said.
"Banks and other financial services companies that
focus on customers over products, on episodes over functions, on fast
test-and-learn over business cases and on customer outcomes over internal
consensus may stand up to Amazon's flywheel when it spins into their
market."
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