Reports that Amazon may offer checking-like accounts are a fresh reminder that the boundaries separating financial services from other industries have blurred.
Amazon already offers many banking-like products through partnerships with financial institutions, including a cobranded credit card, loans to small merchants and corporate credit lines.
But efforts to provide checking accounts through bank partnerships appear to mark a more serious foray into the core of financial services. In fact, it seems like an intention to gain share as a disruptive provider.
That could be important. Perhaps even momentous. Amazon may be the greatest disruptor of our age. The e-commerce titan continues to aggressively disrupt businesses even when things are going spectacularly well. After transforming book sales and retail in general, Amazon moved into streaming media, web services, cloud computing and groceries, while introducing consumer-centric innovations like Amazon Prime and Amazon Echo. Now, Amazon is developing its own on-the-ground logistics capabilities, threatening to disrupt long-established shipping incumbents.
And with or without Amazon, the financial services marketplace is evolving with real speed. Powerful digital aggregators and fintech players are seeking to change everything from how banks acquire and serve customers to the markets they can serve to the revenue and profit models they follow. These added pressures should compel banks to disrupt their own strategies and operations. To date, few actually have.
Significantly, the Amazon juggernaut is also fueled not only by its repeated innovative jumps, but also by its ability to sustain high levels of consumer trust as it disrupts market after market.
One immediate and practical way to learn from a customer-centric innovator like Amazon is to strategically hire from its executive ranks. A variety of large, established companies have done just that: Target, Walmart, Apple and PayPal have all recruited Amazon alums into important leadership roles.
Tellingly, our scan of traditional financial services companies found few, if any, Amazon alums in the executive ranks — particularly in major U.S. banks. Amazon alums are evident in a handful of successful financial services startups like SigFig, Boku and BankBazaar, but are not found at traditional incumbents. The lack of importing Amazon talent into traditional banks could suggest that banks remain reluctant to let go of familiar ways of working to pursue more boldly innovative approaches. Recruiting Amazon alums would bring a bank great strengths in the customer-centric reconceptualization of a business. Consider how the same skills and orientation that brought to market Amazon Prime could reinvent the complicated 401(k) rollover process. Undoubtedly, there would need to be the restructure of bank executive compensation, shifting the incentive from annual plan achievement to long-term shareholder value creation.
Can banks replicate Amazon’s magic blend of disruptive innovation and sustained consumer trust? Absolutely. And they can do so in ways that make good sense for banks.
Many traditional bank products and services are ripe for creative disruption, including the policy and pricing of overdraft programs, the management of over-limit credit card approvals, the adoption of real-time payments and balance reporting, the extending of short-term credit based on recent transaction history and the increasingly important management of payment credentials. All of these bank products and business practices are examples of how traditional orthodoxy and near-term economics have been holding innovation hostage. Emphasizing consumer convenience and transparency — combined with taking on the risk to invest some short-term economics in pursuit of longer-term market share gains — could well translate into significant strategic advantage. That is what Amazon would look to do.
At minimum, a deeper understanding of why Amazon succeeds could help banks build more of the customer-centric courage required to innovate, and more of the wisdom needed to make those innovations pay. More pragmatically, thinking about financial services the way Amazon does will help identify the disruption and innovation opportunities that one should either creatively pursue. Otherwise, banks are simply left with preparing to defend as Amazon advances.