Amazon is considering launching a checking account, according to a report in The Wall Street Journal.
However, this move should be viewed more as an attempt by Amazon to find new sources of revenue and strengthen customer loyalty, rather than a full-frontal assault upon the banking establishment.
Initial reports suggest that Amazon is not setting up its own bank, but is seeking to partner with an established bank to offer an Amazon-branded checking account. This product will be initially marketed at younger consumers and those who are underbanked.
This should reassure banks that Amazon does not want to poach significant numbers of customers from them, but instead wants to target underserved consumer segments they have neglected.
Amazon is under considerable pressure from shareholders to significantly increase its earnings and profits every year, and as its core markets mature this will become progressively more challenging. Focusing on lower-income, underbanked consumers will help Amazon unlock new sources of revenue. According to the FDIC, around 7% of US households are unbanked, and a further 20% are underbanked. This amounts to a significant opportunity for the retailer.
Offering a checking account will lead to two significant benefits for Amazon. Firstly, it will allow it to onboard consumers who currently lack banking facilities or credit cards, thus opening up a whole new demographic.
Secondly, Amazon will have access to more customer data, a valuable commodity for a data-driven retailer. It will be able to see customers’ transactions, which will give it valuable insight into their purchasing behaviour and preferences.
This will let Amazon, which has already honed product recommendation to a fine art, further improve its cross-selling capabilities. AI thrives upon large data sets, and access to transactional data will enable Amazon to improve the predictive power of its algorithms, make more relevant offers and recommendations to its customers, and hence improve sales performance.
In order to encourage take-up, Amazon may offer financial incentives such as reduced fees for Amazon Prime membership, although recent research by Cornerstone Advisors suggests a significant proportion of millennials are already willing to adopt an Amazon account.
Of particular interest is that consumers reacted more positively to the idea of a paid-for packaged account rather than a free-to-use basic account, which offers the potential for extra revenue.
But any banking proposition will only be a peripheral concern for Amazon, as is the case with other retailers that have entered this sector, such as Tesco and Marks & Spencer in the UK.
Rather, it amounts to just one more part of Amazon’s efforts to become a one-stop shop for all of its customers’ needs. It already offers clothing, TV, music, groceries, and is moving into health insurance. Banking is merely another means to achieving retail domination.