“ALEXA, MOVE MY BANK ACCOUNT TO AMAZON”: MORE THAN HALF OF ALL CONSUMERS ARE WILLING TO BUY A FINANCIAL PRODUCT FROM A TECH COMPANY OVER THE NEXT FIVE YEARS WITH AMAZON LEADING THE WAY

A recent survey from Bain & Company finds US and UK consumers ranked Amazon nearly as high as traditional banks for trust with their money

New York – March 6, 2018 – Tech companies pose a clear and present challenge to banks – none more imminent than Amazon, which is reported to be in talks with JPMorgan Chase and other big retail banks to create a checking-account-like offering aimed at younger adults and those without checking accounts. This move would build on the company’s initial forays into financial products over recent years. And according to a recent report from Bain & Company, many banking customers are all too ready and willing to ride the wave of disruption.

In its survey of more than 133,000 consumers across 22 countries, Bain & Company found that more than half of U.S. respondents – and fully three quarters of those age 18 to 24 – are willing to buy a financial services product from established tech players, with Amazon atop the list of the most trusted. Apple and Google round out the top three.

This finding may be surprising to the traditional banking industry, which bet on nimble fintech startups as the likely disruptors. However, it is increasingly clear that established technology firms could pose the bigger threat. Fintechs may have innovative products, but they struggle to build brand recognition or a distribution model that attracts many customers. Large technology firms already have established brands and customer access, which provide an almost unassailable distribution advantage.

According to Bain & Company, Amazon is well positioned to succeed in U.S. banking because of its frequent purchases and customer reviews; a full commercial relationship including credit card on file; integration into consumers’ computers, smartphones, tablets, TVs and home audio devices; excellent service, including a great returns policy; and no major security breaches so far. No other technology firm, at this time, can claim all of these advantages in the U.S.

“Amazon’s interest in banking is something we’ve anticipated for a while,” said Gerard du Toit, who leads Bain & Company’s banking and payments sector in the Americas. “Checking and debit accounts are notoriously unprofitable, especially for a fee-free model aimed at younger customers, who often have little money to keep in the account. Most banks don’t relish serving this part of the market. But Amazon has a number of good reasons to dive in. Its incremental costs to do so will be almost nil and it stands to benefit in ways that go far beyond making money on bank accounts.”

Amazon can afford to go after this previously unprofitable segment in part because it can transform the economics of banking; Amazon does not have the burden of an expensive branch and contact center network – which Bain & Company estimates comprises roughly 40 percent of a typical North American retail bank’s costs. The company can also avoid a lot of the customer acquisition costs borne by most direct banks, because it already has digital relationships with so many Americans.

Amazon can also avoid dealing with bank regulatory compliance or managing the balance sheet. For example, Amazon’s retail banking partner would hold deposits, while Amazon would design and manage the customer experience and distribution.

Finally, Amazon can make it easy for customers to pay right from that account instead of with their credit cards, which impose fees for each transaction on Amazon or its third-party merchants. Bain & Company estimates that Amazon could avoid more than $250 million in annual interchange fees in the U.S. alone.

If Amazon delivers a truly breakthrough proposition that they continue to expand, Bain & Company believes the company’s banking services could gain more than 70 million consumer relationships over the next five years or so years. This would make them the third largest bank in the U.S., with more banking customers than Wells Fargo.

“Amazon stands a very good chance of succeeding in banking, by disrupting the industry as it has in retailing,” said du Toit. “Customers indicate ample willingness to buy financial products from technology firms, and Amazon has earned their trust more than most other tech firms. It also possesses all the essential ingredients: digital prowess, a large customer base, an organization skilled at delivering pleasant customer experiences, and ample leeway to extend the brand into banking.”

Once Amazon establishes a co-branded basic banking service, Bain & Company expects them to move steadily but surely into other financial products including lending, mortgages, property and casualty insurance, wealth management and term life insurance. E-shopping patterns already tell Amazon what it needs to know about customers’ life events, from getting married to having children to buying a house, which will be useful for offering relevant financial services products. The company could also add banking services in markets beyond the U.S., such as India and Mexico, where more than 80 percent of survey respondents said they would buy banking products from a technology player.

To raise their competitive game and stave off incursions by big tech firms, retail banks can learn from Amazon in three critical areas:

• First, banks should get serious about putting customers first, meeting their needs in innovative ways rather than pushing products.
• Second, they will have to learn to move much faster, discarding decision making by committee.
• Third, they can use new distribution channels by partnering with technology firms, so that they can improve their capabilities in data science and experience design.

Editor's Note: To arrange an interview, contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102

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