Why There Is No Amazon Of Banking

According to a recent American Banker article titled Amazon Becomes Retail Bank Role Model:

“Amazon has revolutionized everything from publishing to online shopping. Can it save retail banking? At Retail Banking 2014, bank execs repeatedly invoked Amazon as an example of what they aspire to become. One said ‘Amazon was conceived around the use of data and the customer experience.’ Another called Amazon ‘the most visible example of using data to customize a customer experience.’ Another called the Amazon model a possible savior for the industry.”

My take: These views reflect a complete misunderstanding of what Amazon is.

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I don’t dispute for a moment that Amazon makes great use of the data it gathers, and that it delivers a superior customer experience. But that’s not what Amazon “is.” What Amazon is is one of the world’s largest distribution systems.

The fundamental difference between Amazon and banks is not the use of data or the customer experience. It can be summed up by this:

Amazon does not care what you buy, as long as you buy it from Amazon.

That can’t be said about banks. Banks want you to buy their products and services, and don’t care who you buy them from (although the overwhelmingly majority of time those products will be purchased directly from the bank).

There are no Amazon-branded products or services. As a result, there are no Amazon product managers with a vested interest in selling their product over some other brand.

Can you walk into a Citibank branch and open up a JPMorganChase checking account? Nope. Can you go to the Bank of America web site and apply for a Wells Fargo mortgage? Nope.

But you can go to Amazon’s web site and buy just about anything that anybody else sells.

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In 2000, I published a report while working for another analyst firm called The Atomization of Financial Services. In it, I predicted that the structure of the industry would change, and that a class of banks I called “attractors” would emerge.

I described these Attractors as banks that understood customers’ needs, created superior customer experiences, and connected customers to the best products and providers of those products. Attractors would generate revenue not from the sale of their own financial products and services, but from connecting customers and providers.

Sounds like Amazon, no?

I couldn’t have been more wrong. Of course, I describe this error as simply one of timing. That is, this just hasn’t happened yet. (I’m not holding my breath waiting for it to happen).

The closest thing to an Amazon in financial services is Bankrate.com. But Bankrate isn’t an Amazon–and will likely never be–because of its business model. Bankrate operates under an advertising business model. Amazon is much more complex business model driven by enabling commerce.

Anybody can create a website, attract a few eyeballs, and sell advertising. Nothing wrong with this if you can sustain it, and don’t dream of being a $1 trillion business. 

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The AB article quotes an interview with BBVA’s CEO who said :

“There is a concept that’s common in Internet retail, which is ‘propensity to buy’ — and the algorithms that come with that. I think we are at the infancy of understanding those business models in banks. And that’s what Amazon and all the internet retailers were founded on. They can tell you what you need to buy next.”

I’m very surprised to read this. The use of analytical models in bank marketing–particularly for credit products–is hardly in its “infancy.” And lumping Amazon in with other internet retailers really diminishes its accomplishments, and position in the retail delivery chain.

But let’s go back to the propensity-to-buy concept. Even if a bank were to improve its ability to predict what a consumer will buy next (I struggle with the notion of telling customers what they “need” to buy next), the bank would want that consumer to buy the bank’s product. Amazon may “know” you will buy a certain product next, but it doesn’t care which brand you buy as long as you buy it from Amazon.

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BBVA’s CEO is the same banking exec quoted back in a December 2013 Financial Times article as saying “banks need to take on Amazon and Google or die.”

Funny, I remember a Forrester Research financial services conference from about 10 years ago when a colleague of mine said something to the effect “if banks like ABC and XYZ don’t adapt to the Internet, they’ll die off like dinosaurs.” ABC and XYZ complained, and as his boss, I had to go visit those banks to “apologize” for his comment (the current CEO of one of those banks was in that meeting, complaining to me about the statement).

I guess if you talk about banks in general as dying, that’s OK, as long as you don’t mention any by name.

The exec is also quoted in the article as saying that “banks need to use data to give customers exactly what they want.”

That’s great, but what if what they want is best provided by another bank? (If you’re one of those bankers who believes your bank has the right product for everyone, I’m not going to waste my time trying to knock sense into your fat head).

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Amazon isn’t the future model for banks. It’s the biggest threat.

I will get a ton of disagreement on this, but I don’t think Apple and Google will be big threats to banks. Neither company has the customer service infrastructure and delivery capabilities required to be a bank, nor do I believe either has the appetite to create it

The threat from Amazon is, in my opinion, not about displacement, however. It’s about margin erosion.

Amazon’s business model doesn’t give it the incentive to be a bank. What Amazon wants is to reduce payments friction. If Amazon can simplify the movement of money from the “source”–typically a checking account–to the businesses that sell on Amazon, then Amazon can make more money.

Amazon will do what Simple and Moven are doing–creating superior front-ends to the back-end account–to achieve its goal of simplified money movement. Amazon still wants banks in the equation. And some banks stand to gain business from partnering with Amazon to get that business.

The price, however, is reduced profit margins. Remember one of Jeff Bezos’ well-known quotes:

“Your margin is my opportunity.”

Most banks I know of are focused on how to attract more consumers to sell the products they already sell, and talking about “using data” and “improving the customer experience” in order to do so. 

That’s not Amazon.

If you know of a bank that’s trying to shift the fundamental economics of the financial services industry by attacking profit margins, and creating a new distribution system (i.e. being the central nervous system of the industry), let me know.

Bottom line: Please, bankers, stop telling us about your wet Amazon dreams. I know Amazon, and you sir (and madam), are no Amazon. No existing bank will ever become an Amazon.

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20130324 10:31 update: Shoot. Hate being wrong. As my buddy @shukla points out, I was wrong in saying “there are no Amazon-branded products or services.” Kindle, hello? But even here, Amazon’s approach to its own branded product is likely to be different than a bank’s. Jeff Bezos, quoted in Wall Street Journal, said “we want to make money when people use our devices, not when they buy our devices.” In other words, the Kindle is simply a platform to make it easier for consumers to buy all those non-Amazon-brands products and services. [sigh of relief]

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