The launch of Amazon.com Inc.'s Kindle Fire in late September stoked the flames of the tablet war raging among providers such as HP, Apple, RIM, Apple and Amazon.
But the addition of a low-cost tablet with Amazon's enormous cachet in Internet sales also presents a mix of opportunity and threat to banks.
Banks have to be where their customers are. And the Kindle Fire is another remote access device which banks must consider for both advertising and online banking.
The demographics of the Fire are likely to be different from those of tablets such as Apple Inc.'s iPad, says Mary Monahan, director of mobile research for Javelin Strategy & Research.
While 8% of consumers have an electronic tablet, 12% have an e-reader, Monahan's research indicates. But adoption of the e-readers skews older than that of the tablet. About 14% are 65 and older, compared to 10% who are between 18 and 24 years old.
"One of the problems banks have is a group of customers who are content doing paper banking, and who are not even online, but they are getting used to the e-readers," Monahan says.
By blending the e-reader with a tablet, Kindle is likely to make more of those users converts to online banking via the Kindle device, Monahan says.
Content is also the new real estate, and it is quickly trumping physical branches for importance to banks, says Kevin Travis, partner for Novantas LLC in New York. Upwards of 30% of bank customers rarely visit branches, and they prefer remote channels, Travis says.
"This is another form of remote interaction, and another place where the customer will be present and the banks clearly need to have their brand and their offer in front of consumers, particularly where other types of commerce are going on," Travis says.
In addition to being a place to access online banking, older, ad-supported versions of the Kindle provide an advertising platform for banks. During the fanfare around the Fire, Amazon's chief executive, Jeff Bezos also announced the Kindle, Kindle Touch and Kindle Touch 3G will all be ad supported.
In April, Visa Inc. and JPMorgan Chase were two early sponsors of a feature called AdMash, which let consumers set which advertisement the cheapest version of the Kindle switched to when it shifted to screen-saver mode.
"We basically create a stream of messaging that is highly relevant to this population as they consider the Kindle, either in the act of purchasing it, and when they have the device," Conrad says.
Chase would not say how much money it has spent on Kindle advertising. Visa did not make anyone available immediately for comment.
In a bid to make its own payment mechanism more relevant, Chase has also made it simpler for its Amazon rewards cardholders to redeem points. They currently get 3 points for every dollar they spend, with 100 points equaling one dollar, and they can spend those points immediately on the card. They previously had to accrue 2,500 points and then had to wait for a physical gift card by mail.
"We think there are additional opportunities to talk about digital content and how rewards apply to this," says Chris Conrad, marketing director in charge of Amazon rewards card for JPMorgan Chase & Co. "It is a new way to talk to individuals with a high degree of interest in Amazon," he says.
Banks could potentially engage with Amazon in the realm of non-card, mobile and online payments. Besides books, magazines and newspapers, the Fire, which runs on Google's Android operating system but uses a browser called Silk, which Amazon designed, provides access to expanded content, including video and music as well as all the other merchandise Amazon sells online. In contrast to Apple, which takes a cut of revenue for things like magazine subscriptions sold through its iTunes store, experts say that Amazon operates more like a newsstand, and will give banks a chance to engage more directly with consumers.
But there is a potential downside to bank and card providers of the growing popularity of tablets like the Kindle. As customers, and particularly younger consumers, grow more comfortable paying for merchandise and services online with alternative forms of payments such as those offered by PayPal Inc., or person-to-person transactions from a variety of providers, banks run the risk of disintermediation, Travis says. Although Amazon does not currently accept PayPal to pay for goods and services, mobile device users have expressed a willingness to use alternative payments.
Even though banks hold the funds of the alternative payment providers, they do so in more costly commercial accounts.
"It could increase the cost [of holding the cash] fundamentally, and further exacerbate the revenue pressure retail banks are under," Travis says.