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Amazon bank could have 70 million customers in five years

Amazon could have more banking customers in the US than the UK has citizens within five years

Amazon could be a top three US retail banking services supplier, in terms of customer base, if it pushes into banking.

According to business consultancy Bain & Co, the e-commerce giant could have 70 million US banking customers in five years. The prediction follows news that Amazon is talking to banks, including JPMorgan, about potentially setting up checking accounts – the US equivalent of current accounts – for younger people or the unbanked.

Although talks are at an early stage, the model reported could see JPMorgan offer a white label banking service to Amazon, which the tech giant would brand, and make decisions on products and services.

But why would Amazon want to enter the current account sector, which is not very profitable?

According to Bain & Co: “Amazon has spotted a segment of customers that it can serve better, and the company can worry about making money later.

“It can afford to go after this previously unprofitable segment, in part, because it will be able to transform the economics of banking. Amazon does not have the burden of an expensive branch and contact centre network, which we estimate comprises roughly 40% of a North American retail bank’s costs on average.”

Amazon has a history of patience and investing for future profit when entering new markets. When the company entered the cloud computing sector with Amazon Web Services (AWS), it invested heavily in infrastructure such as huge datacentres – and continues to do so – which initially limited profitability. Today, Amazon is a byword for enterprise cloud services, and this part of its business is an important profit driver.

Bain & Co said Amazon could cut costs through technology. For example, it could use its Alexa voice assistant to help customers instead of expensive contact centres. It would also avoid a lot of the customer acquisition costs because it already has digital relationships with so many US citizens.

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The likely model would see the bank partner hold the deposits and meet regulations, while Amazon would focus on customer experience and product offering.

“Beyond direct cost savings, we could imagine Amazon’s banking services growing to more than 70 million US consumer relationships over the next five years or so, the same as Wells Fargo,” said Bain & Co.

While Google bank is often referred to as the nirvana of digital financial services, Amazon’s reported talks with banks could be a major landmark in banking.

“For bank executives and board members, this is a watershed moment,” said Bain. “Amazon’s entry takes the competition into a different league. Consumers’ expectations keep rising as people grow accustomed to simple, convenient digital channels perfected by digital natives such as Amazon.

“If banks don’t re-orient their approach and radically accelerate their rate of progress, they will watch technology firms steadily poach their business. At first, it will be the unprofitable slice that no one wants. Then the rest of the pie.”

“If banks don’t re-orient their approach and radically accelerate their rate of progress, they will watch technology firms steadily poach their business. At first, it will be the unprofitable slice that no one wants. Then the rest of the pie”
Bain & Co

According to an IT professional in the banking sector. “If the big tech firms like Apple, Google, Microsoft, PayPal, Amazon and others wish to get into specific financial services, I think they have the power to beat the banks.”

But he added there could be scope for the banks to become suppliers of banking services to tech firms. While the tech firm will be the brand and make decisions on products and interest rates, banks could provide them with a “white label” service in the back end. This might include all the regulatory compliance required, as well as financial expertise.

“Banks might become suppliers to the big internet companies. This would enable them to get into banking without going through the pain of becoming a bank – tech companies the public face and making decisions on products, with the banks behind the scenes,” he added.

Read more on IT for financial services

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