Is Amazon Building The Next Generation Bank?
Over the years, Amazon has been steadily building a product line that supports its goal of increased participation in the Amazon ecosystem. The company has built, bought, partnered and launched tools that expanded merchant participation and activity, number of customers, increased cart and checkout size and reduced friction on both the buy and sell side.
Seemingly unstoppable by regulators or competitors, the company is armed with numerous patents, virtually unlimited cash, a massive, devoted customer base and unending data. With this, Amazon could represent a real threat to traditional banking. However, Amazon remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem and solving inefficiencies for its 310 million active customers, 100 million Prime customers, 50 million Echo owners and 5 million sellers worldwide (according to company data).
Amazon has also made several fintech investments to support its core strategic goals. All of this points to the conclusion that the company isn’t likely to build a traditional deposit-holding bank. Instead, it seems focused on taking the core components of banking and using them to best support its merchants and customers. As a CB Insights study summarized, “In a sense, Amazon is building a bank for itself — and that may be an even more compelling development than the company launching a deposit-holding bank.”
Still, there are several categories where traditional banks shouldn’t rule out Amazon as a significant competitor. With Amazon approaching $1 trillion in market capitalization, it can’t be ruled out of any race. The company has long been experimenting with financial initiatives, including partnering with major US banks that offer accounts in the online marketplace. All the while, the company continues to expand and grow its existing financial offerings. As the Office of the Comptroller of the Currency moves to introduce policy that will level the playing field in banking, I believe fintechs, big tech and startup disruptors may have a more competitive advantage.
Amazon’s DNA is to be the platform. The company is rooted in distribution, integration, logistics, convenience and instant gratification. When Amazon applies those roots to financial services, it can help financial institutions process, underwrite and service loans at a lower cost than what banks currently incur while fulfilling a higher demand. The company has no reason to be the lender in this case. It simply takes a cut of the FI’s business while offering vertical ancillary solutions like KYC and AML at an additional cost.
Just Walk Out, a biometrics payments technology pilot program with Amazon Go stores, allows customers to purchase items from the store without checking out. The company is likely to push the technology out to other Amazon brands such as Whole Foods as soon as Q2. Still, it could also be expanding outside of the Amazon lair to other grocery and retail chains.
The company has also started testing Amazon One, which uses palm-scanning technology to eliminate the need for any physical payment method. Consumers can also tell Alexa to Pay for gas, movie tickets and utility bills, through partnerships with fintechs and other companies. According to CB Insights ‘ Industry Analyst Consensus, the global voice shopping market is poised to grow from $2B to $40B by 2022.
Amazon isn’t the only player in the automated retail technology space. AiFi makes retail stores autonomous with its compelling camera vision platform. Through its unique approach of partnering with retailers, AiFi can provide a hybrid experience tailored to stores’ existing customer bases (users can still opt for a traditional cashier). For example, just this last week the company announced the opening of a 5,000 square foot autonomous store in Denver, CO, a collaboration with Choice Market. While in total, AiFi has ten live locations to Amazon Go’s 29, it’s delivering healthy competition, and purportedly a better customer experience.
While Amazon has had numerous product pivots and failures along its way, it still isn’t afraid to iterate as it moves from e-commerce to omnichannel enablement. Next-generation bank? Probably not. But one way or another, Amazon is likely going to use its vast data, distribution and enablement to change the way its customers experience banking.
Disclosure: My firm, Moor Insights & Strategy, like all research and analyst firms, provides or has provided research, analysis, advising, and/or consulting to many high-tech companies in the industry. I do not hold any equity positions with any companies cited in this column.