What Banks Can Learn from Amazon: How the E-Commerce Giant Will Change Consumers’ Banking Relationships

What do Amazon and banks have in common? More than you may think.

Amazon has changed the face of retailing in recent years. Now it appears to have the power to change something equally as significant — consumers’ relationships with their banks.

We all know that Amazon has become the intermediary for many consumer transactions. This includes the purchase of everything from books to apparel to electronics, to groceries and almost anything else that can be bought from bricks-and-mortar stores.

As such, the e-commerce giant has learned more about its individual customers and their shopping (and payments) patterns than banks do or ever could. It could very easily parlay that knowledge into developing a cadre of financial services that truly appeal to consumers, giving them a reason to walk away from their financial institution.

But this is really just the tip of the iceberg. A willingness to reward customers for their loyalty is a priority among consumers and may significantly influence their choice of bank. Consider the results of a study conducted in the United Kingdom by Collinson Group. Of affluent middle-class consumers queried for the study, nearly 66 percent said they expect greater recognition for their continued relationship with their bank, and not being rewarded for loyalty was found to be more of a significant frustration than unnecessary fees and poor interest rates.

The study also revealed that 72 percent of customers who feel loyal to a bank are more likely to purchase a banking product in the future, and those who are willing to purchase additional products through their bank are less willing to switch banking service providers.

 

Loyalty matters both on and offline

Unlike banks, Amazon clearly knows how to engender loyalty among its customers. Those with paid Prime membership programs get perks like unlimited complimentary two-day shipping on millions of eligible items in the United States, along with access to original and licensed TV shows and movies on Prime Video. Amazon CEO Jeff Bezos said the ranks of Prime members have topped 100 million worldwide. This is comparable to the number of accountholders on many banks’ portfolios — and more than the number of consumers and companies served by some credit unions.

Given all of the above, it stands to reason that were Amazon to introduce rewards like discounts on its purchases or a free Prime membership in exchange for signing up for the Amazon credit card (or other financial services, for that matter), many consumers would apply for the card. The majority would likely sever at least a portion of their existing bank relationships. And Amazon could certainly handle such an endeavor, considering how well it understands consumers’ shopping patterns. Determining a return on investment (ROI) for issuing would not pose much difficulty to the e-commerce giant.

For Amazon, retail rules

Moreover, some observers note that the majority of banks are moving away from retail, which is the opposite of Amazon’s strategy. The company continues to innovate in the bricks-and-mortar segment, and chooses to grow through multiple channels rather than limiting its efforts to online exclusively. Amazon’s acquisition of the Whole Foods supermarket chain, which was followed by a marked reduction in prices in myriad categories, is testament to its retail-focused stance. So, too, is the debut of the Amazon Go  ‘convenience store of the future’ concept in Seattle. Amazon Go has no cashiers — just employees who help to prepare and package food — and transactions are cashless. (Yes, you read that right.)

 

 

Shoppers use the Amazon Go app to enter Amazon Go and take the products they want. Amazon’s Just Walk Out technology automatically detects when products are removed from or returned to the shelves, keeping track of them in a virtual cart. When customers are finished shopping, they simply leave the store with their purchases. Shortly thereafter, they receive a receipt for a charge against their Amazon account. According to a report in Recode, Amazon intends to open as many as six more Amazon Go stores this year.

Banks could innovate at the branch level to improve the retail process, just as Amazon improved the retail shopping process with the Whole Foods acquisition and development of Amazon Go. It would definitely take some of the sting out of going to the bank — a task few people enjoy because of the inefficiencies in servicing customers. Consumers also have, thanks to Amazon, a changed perception of what large companies should be doing for them — namely prioritizing customers’ needs, rather than their own, not only with personalized service, but with round-the-clock customer service availability and more.

The banking tie-in

In March, the Wall Street Journal reported that Amazon is said to be in talks with JPMorgan Chase, Capital One and other unnamed banks about introducing an Amazon-branded checking account for its customers. While neither financial institution would elaborate on the talks, and it is unclear what else Amazon might offer in the way of banking services, one thing is abundantly certain, and it is that Amazon is well-positioned to become a bank — a bank to which many consumers would jump ship given the opportunity. While this is poised to happen rather slowly (because of its method of ensuring the viability of charting new waters), Amazon has already done much to disrupt the bank-consumer relationship. More disruption is, without a doubt, coming down the pipeline.

 

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