Financial institutions of all sizes closely watch the actions of Big Tech and Big Retail to understand how they are and how they may, in the future, encroach on banking activities. Walmart certainly has been giving some hints with the activity around its H^zel (nope, not a typo) initiative. An article in Forbes looks at the prospects of Amazon jumping into financial services as a direct competitor. As the article articulated, they are a significant threat because:
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.
The conclusion is that Amazon won’t look to compete directly; they won’t necessarily get a banking charter and offer financial services, but they are still a competitor and will provide financial solutions where it benefits and supports its core consumer base and community of merchants:
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.
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.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group