There has been a lot of chatter lately about an Amazon-branded checking account.

While some see the possibility of another Amazon product as the latest proof that the e-commerce titan is a growing threat to the banking industry, others dismiss the news as same-old gossip for a company that already offers a lot of products and services in financial services.

But it’s not far-fetched to think Amazon has bigger plans than what it already offers in banking and payments. Over the past 10 years, Amazon has upended the retail space, and in the process, it has also transformed the logistics involved in home delivery. However, banks’ real problem has nothing to do with what Amazon does.

Banks' problem is much bigger than whether or not Amazon becomes more of a threat in financial services or not. Bloomberg News

While it’s intriguing to think about how Amazon might change the banking industry, the news feels more like window dressing to cover the fact that there is a larger disruption affecting banks today: The real value of money has changed, while the banking business model has not. In other words, customers want to use their money to pay for everything from groceries to rent — and they want to do it quickly and easily. But in order for banks to make money, they have to hold onto that money.

Since the days of the stagecoach, people have paid a bank a fee to safely store and transport their cash and gold. As consumers became more uncomfortable with fees over the years, banks have tried to add value to what they are paying for by opening branches and offering ATMs, money market accounts and free checking. These days, they offer digital banking and some banks even offer voice-enabled banking.

These services, while valuable to the consumer, are ancillary to a bank’s core value proposition: holding your money. However, that core value proposition is not nearly as important as it used to be. Today, the real value of money is based on what it can do. And if people no longer need banks to hold their money, the business model is fatally flawed. Banks should plan for an overhaul on the value their industry provides to customers.

Before you dismiss the idea as too futuristic, consider the challenges to the traditional banking model that are already breaking through.

Alipay, e-commerce giant Alibaba's mobile wallet, claims more than 450 million users worldwide. On the Chinese version of Black Friday in 2017, Alipay processed $25.3 billion in sales.

Users can send money for anything from groceries to rent, but Alipay isn’t just a transaction tool like Venmo or Splitwise. Alipay holds customers’ money in escrow until someone uses it to order something online from Alibaba or somewhere else. It also offers financial services, such as money market accounts and small-business loans, that offer better returns and interest rates than traditional financial institutions. With these services, most Alipay users have no use for a bank account.

The Alipay model works because the financial model doesn’t rely on stockpiling money. The company’s goal is to enable commerce. Since spending and transactions drive revenue, there is very little value in where money is stored. And if that's true, then the banking business model is even more fleeting because it’s entirely possible Alipay (and possibly Amazon) will start to give away every traditional banking service for free in order to make spending as frictionless as possible.

To be fair, banks are paying attention. Some have made significant investments into their mobile banking apps and have begun to leverage new technology to help customers invest and manage their money. For instance, Bank of America created erica, an AI-fueled chatbot that will help customers identify ways they can save money or pay bills easier. Ally Bank launched Ally Skill on Amazon’s voice-activated devices so that account holders can ask Alexa what their balance is and easily transfer funds between accounts.

And yet, there is still a fundamental flaw: These innovations are built upon the ancillary services banks have always provided around their core value proposition of holding people’s money. In other words, for you to experience a bank’s innovations, you have to have your money in said bank. Until banks start rethinking that basic premise, they’ll continue to iterate on their current business model while customers pass them by.

According to a recent Bain & Co. report, almost as many people said they would trust Amazon to manage their money as they would trust a traditional bank. This is likely why an Amazon-branded checking account may have banks worried. For years, security and trust have been the banking industry's selling points for the services they offer, and now that's being threatened.

Challenging one of the basic tenets of banking is to challenge a consistency that’s worked for years. But the challenges to the financial services market are real.

Banks need to figure out how to translate the trust they’ve earned over decades into something valuable outside of holding money. A good example is the Tokyo-based fintech startup Folio that Goldman Sachs recently invested in. Folio allows customers to invest in buckets of stocks around a certain theme. Acorns and Betterment are also clues as to what the future of banking holds: These two “robo-advisers” automatically shift small amounts of customers’ money into higher-yield investments.

Change on this scale is not easy work, but incremental innovations that are based on the traditional banking value proposition will continue to be short-lived. The sooner financial institutions can get out of their comfort zones, the sooner everyone can start planning for a very real and very different future.

Ben Gaddis

Ben Gaddis

Ben Gaddis is president of T3, an innovation agency based in Austin, Tex.

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