Interesting read about Amazon moving in to banking. Written by the founder of Ffrees. Now uaccount.uk (basically the first ever fintech bank)
I fundamentally disagree with the principle that Amazon is going to become some major banking force and that everyone else will have to team up to stop them. I’d fundamentally disagree with it even if bigger companies like Apple or Google - who both control huge hardware ecosystems - were mentioned in place.
Disruption is hard and it requires fundamentally different thinking than what you get even at the most progressive of tech companies. There’s a reason why Google, Facebook, Twitter, YouTube, Instagram, Uber and Spotify were all built from the ground up.
I think there will be a few clear winners in this space and then the large tech companies will acquire everyone else to bolster their own efforts.
Ok so I’ll play devil’s advocate here
I don’t believe that Google, Amazon, Facebook or Apple (GAFA) will ever become regulated banks. But I’m not sure that they need to, in order to become a significant force in finance either.
We know that they can partner with existing banks, in order to provide lending products. But without having control of the platform, a modern platform & being able to create the end-to-end experience, I don’t believe they’ll become a threat to the challengers.
They still have a huge opportunity to take a bite out of bank’s revenues though. 65% of bank’s profits (in the US at least - which is the region that I assume the below diagram covers), come from services that don’t rely upon balance sheet lending -
Image from here.
& if the marketplace model takes off, they’ll be able to go after that revenue too.
They’re all offering payment solutions in one form or another now which enables them to gain access to our transaction data. Using that, they can offer the same insights as the challengers, to prompt customers to purchase products & services.
Amazon has additional incentives to get into the banking space because having access to customer’s transaction data would give them the ability to improve their online store. And they could potentially cut out the schemes (Visa, MasterCard etc.) to avoid paying acceptance fees.
As we know the challengers represent a shift from a product orientated business model to a service orientated business model & that’s right up Amazon’s street. One of their core values is obsessive customer focus & we all know how good their customer service is. They are focused on providing a great user experience more broadly too.
Amazon has plenty of experience selling third parties products in their store. And they’re developing new interfaces to enable them to sell products to you, even when you don’t have a phone in your hand. I can certainly imagine buying insurance for my new phone via Alexa or even taking out a loan. Voice interfaces are only going to become more delightful as time goes on & I trust Amazon to find me products at some of the very cheapest prices, without me having to search. If they bundled the ‘banking like’ services into Prime, they’d have some real leverage to drive adoption as well.
Facebook could offer a ‘chatbot like’ service through Messenger & we’re starting to see them creating a marketplace now too.
Google has an awesome looking payments product in India now, as well as Google Pay & they are of course, great at advertising.
I’m hopeful that Monzo’s control of the end-to-end experience & full suite of services will enable them to create a more compelling offering overall. But there’s a big slice of the legacy bank’s revenues there, just waiting to be taken & I’m having a hard time seeing why GAFA wouldn’t try..
I think the real key for in particular Amazon moving into banking is that it gives them total insight into spending behaviours. Amazon makes money by selling things. And in much in the same way as Clubcard and Nectar has given the supermarkets the ability to leverage more by deeper insights l think banking is the way for Amazon to do the same.
I’m not particularly convinced that Amazon et al will set up banks to do this. Certainly for Amazon l think they will acquire some smaller Banks and leverage up the learning from there. Or they’ll exploit open banking to ‘enrich’ the shopping (spending) experience.