What would happen if Amazon went into banking?
On March 5, The Wall Street Journal reported “Amazon wants to team up with banks on checking accounts”, outlining the company’s supposed interest in partnering with JPMorgan Chase and others to offer its clients something very similar to a current account they could use not only to pay for their purchases on the platform, but also for other, unrelated services.
This would be a step on from the kind of co-branding cards seen in the image, something Amazon has been offering for many years, in the same way that many other establishments do: in association with different banks, the company offers its clients payment methods that provide better or even free financing of purchases, discounts, loyalty schemes, etc. Reading between the lines of the WSJ’s article suggests something more ambitious: firstly, Amazon already has a relationship with JPMorgan Chase: along with Berkshire Hathaway, it has announced joint ventures in health care, and given the need to share information and plans in this area, exploring other types of alliances might make sense.
Amazon seems to be looking to reduce the commissions banks and payment processing companies charge its customers, a saving that could obviously induce more people to buy from it. It’s fairly rare for businesses to offer banking services, but for Amazon it could make sense: many customers already say they like the idea, as shown in surveys. In Spain, the country’s leading department store, El Corte Inglés, provides financial services for its employees and customers, although it has never offered banking services per se. Similarly, some supermarkets have their own payment cards that also offer certain services and benefits, such as credit, to their customers.
We should remember that while many people still think of Amazon as an e-commerce company, in practice it is now a vast, diversified empire that produces and distributes content, offers cloud computing services, and more recently, logistics. You could get up in the morning and have breakfast with products ordered through Amazon Prime Now, spend the day consuming or using stuff purchased on the platform, listen to music, watch television series or movies rented from it, store your photos on your cloud, or even manage your business online, your warehouses or your entire store using Amazon: all of which points to huge potential to further leverage its customer base.
Amazon’s strategy has always been to create the services it needs and that it can manage advantageously, later opening them up to third parties to reduce their cost and optimize their operation. In the case of banking services, the US’s harsh regulations have put most companies off trying anything like this. A little more than a decade ago, Walmart tried unsuccessfully to obtain a banking license in the United States, but ended up abandoning its plans and offering other related services such as its Money Centers, money cards and even loans to small businesses through Sam’s Club, while securing banking licenses in Mexico (Banco Walmart, later sold to Carlos Slim) and Canada. In the ‘80s, distribution giants such as Sears acquired companies to provide some financial services, with successes such as the Discover card, today the fourth most popular credit card in the US market, after VISA, MasterCard and American Express, with almost 44 million holders, but the company ended up divesting and selling its participation in the initiative in the ‘90s.
What would happen if Amazon, the company that probably scares more businesses than any other, entered the banking sector? When it needed its stuff delivering, it became the biggest customer to any number of delivery firms, but now, unhappy with the service it gets, and aware that this is the thing customers most complain about, it is to set up its own logistics division. Monday’s news that so far, the company has no plans to become a bank, but if it were to…? And what if it did so in countries with fewer restrictions than the United States, giving it a competitive advantage? Perhaps bank managers need to think about their response to such a competitor entering their sector, what the impact would be, and what makes it so special, aside from its impressive resources, and in what way they might apply some of its competitive advantages?
(En español, aquí)
