When Chris Britt, founder and CEO of the challenger bank Chime, heard that Amazon was reportedly in talks with large banks to offer checking accounts, his first thought was, “What took them so long?”
The retailer had already gone after so many other areas of commerce, why hadn't it attacked banking, he wondered. The decision could be good for consumers — and for companies like his, even if it intensifies competition, he said.
“The fact that someone like Amazon is interested in pursuing this category in many ways validates that there will be new approaches to consumer banking in the U.S.," Britt said.
Amazon already has a credit card product that Britt thinks is compelling.
“To me it seems a natural fit that they’d get into other products like debit, which are a more popular product with many segments of the population,” he said. “It’s probably just a natural complement to the rest of their financial products.”
Brett King — founder of Moven, which is on its way to becoming a U.S. challenger bank — had a similar reaction.
"I’m frankly surprised it took them this long, given Alibaba’s massive success with Yue Bao," he said, referring to the money market fund the online retailer formed that now has more than 370 million investors.
Kathryn Petralia, co-founder and president of the small-business lending fintech Kabbage, also liked the idea of Amazon offering checking with a large bank partner.
“It made perfect sense to me,” she said. “It seems like Amazon is doing this to enhance the customer experience, and they have a really strong focus on customer experience and customer service.”
She acknowledged the paranoia some people feel about Amazon’s aggressive takeover of so much of retail commerce.
“If I was going to wear my foil hat, I would say this could be some crazy stuff and Amazon is taking over the world,” Petralia said. “There are some arguments that they could become too embedded. ... Personally, my life is a lot easier because Amazon exists, and I’m grateful for it.”
Colin Walsh, founder and CEO of the challenger bank Varo Money, also sees the Amazon rumors as a good thing.
“My view is this is a natural evolution of Amazon's push into payments and stored value,” he said. "For Amazon, it's a great way for them to lower their merchant card acceptance cost and obtain more data on customers that can be used to further personalize the shopping experience.”
Ohad Samet, CEO of TrueAccord, paints a picture of Amazon democratizing financial services.
"What Amazon plans to do is anyone's guess, but since its high-value customers already have credit cards and other payment instruments on file, I believe this is about going down-market and making Amazon available to the unbanked and underbanked," he said. "If that's indeed the case and the consumption of prime consumers funds access to financial services for underprivileged consumers, that's a good thing."
Fintechs believe Amazon could shake up the banking industry.
“Young people don’t care about banks, they don’t use credit as much, they tend to use debit, they don’t care if they’re using PayPal or Venmo or whatever the newest tool is, and they don’t have any loyalty or fealty to any institution,” Petralia said. “If they can achieve their objectives with an account at Amazon as well as an account with any bank, I think they’ll do that.”
Backing up her point, a recent LendEDU survey of 1,000 Amazon customers found that almost half would make an Amazon account their primary bank account if they could.
King suggested that an Amazon checking account would further accelerate decline in use of bank branches "as Amazon shows that they can rapidly acquire customers and deposits at much faster rates than any branch network."
Britt said if Amazon comes in with a compelling checking account product, over time that may create more competition for larger institutions that have products focused on fee revenue and product structures that are “adversarial.” The big banks will be forced to become more consumer-oriented, he said.
Samet doesn't see Amazon as a threat to banks, especially if it focuses on the underbanked who have trouble making purchases online today.
"Many of [the banks] moved out of this segment, which they can't service profitably," he said. "Amazon may have some impact on smaller regionals and credit unions."
Unafraid of a powerful new competitor
Kabbage already competes with Amazon for small-business loans. Amazon began making loans of $1,000 to $750,000 in 2011. Last June, the company said it had issued more than $1 billion in loans during the previous 12 months and $1.5 billion in loans in the four years prior. Kabbage has made $4 billion in loans since it started in 2009.
Last month, CNBC reported that Amazon had partnered with Bank of America to expand Amazon Lending.
“They’re doing a ton of small-business lending,” Petralia said. “They’ve deployed a ton of capital.”
Amazon’s target market is a little different from Kabbage’s in that it only lends within its ecosystem.
“They have a lot of ability to extend credit in ways that are very low risk,” she said. “I think they’re going to keep doing that and it makes perfect sense for them to do that.”
Amazon knows all
The thinking is that Amazon would be able to get valuable data on customers’ income and spending habits.
This could raise alarms for privacy advocates who feel Amazon knows too much about all of us already.
Fintech executives say they are unconcerned.
Amazon probably gets some of this information already through the Amazon credit card, Britt suggested.
“Amazon is probably the best company in the world in terms of using data to help personalize experiences for consumers, and I think people generally find value there,” he said. “They tend to use data for good and to create better experiences and try to help you find ways to save money. That would be a huge win for Americans in a category that has so many examples of players that are doing the exact opposite.”
Petralia noted that Amazon could obtain additional data about its customers in other ways than through checking account data.
“If they wanted to understand income or socioeconomic information, they could easily do that by appending ZIP + 4-type data to the customer information they already have,” she said. “They already know so, so, so, so much, if they can make it less expensive to process payments and move money and make it a stickier experience, I don’t think they’re invading our privacy any more than we’ve already let them.”
King posited that Amazon would do a better job stewarding customer data than banks do today.
"Banks have had the same data for decades and, it could be argued, haven’t leveraged it effectively," he said. "Amazon has the potential to dramatically change reward metrics and link your payments behavior to much better correlated purchase potential. In terms of trust, Amazon currently ranks as high as, if not higher, in the trust stakes and their technology stack has better data protection than 90% of banks in the U.S."
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