‘Amazon Bank’ Is Already Here, Without a Charter or Regulatory Approval

Nothing can stop Amazon. Not even banking regulators or geographic borders can slow them down. With patents, patience, a willingness to fail, a huge and devoted customer base, a universe of data, and gobs of money, Amazon represents a real threat to the traditional banking industry.

Would your financial institution ever send a service representative to a someone’s house or office to take a deposit? Not likely. But Amazon does.

“Deposits? Amazon?” you may be thinking. “Did I miss something?”

Maybe not in the U.S.


But in India, Amazon delivery staff already take cash deposits at people’s doorsteps. Amazon collects deposits from Indian customers through the Cashload feature in a version of Amazon Pay. Many Indian customers prefer to pay for deliveries in cash, on arrival. Amazon allows them to warehouse any surplus cash from their purchase in their Amazon Pay account. They can also deposit additional funds against future order.

The balances can also be used to pay other bills through partner websites and apps, such as utilities and online charges, and for Amazon services, such as Prime Membership. The accounts also hold gift card balances and credits for returns. Spending and balance tracking are included.

Up to 10,000 rupees ($143 by current exchange rates) can be deposited monthly — a significant amount in a country where the average monthly income hovers around $50.

Besides the Cashload feature, Amazon also permits deposits from credit cards, debit cards, and banking accounts.

Is it a preview of what could come to America? Quite possibly. When it comes to Amazon, nothing can be ruled out.

Amazon already offers a quasi-deposit service, credit cards, and business loans. Amazon can turn jars of change into gift cards, and will give your kids their allowance via a reloadable debit feature. At what point do executives in the traditional financial industry concede that Amazon is, in fact, a bank?

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Unchartered Territory

If this sounds like the beginnings of a mobile banking service, well… it is. And it’s just a taste of the “Bank of Amazon” that’s could be on the American banking industry’s horizon. Financial executives in the U.S. have been fretting an incursion from Amazon for some time now — with good reason. Amazon keeps experimenting with various financial initiatives, from partnering with major American banks in an online marketplace to offering its own accounts. They also continue growing and expanding their existing financial activities.

U.S. banking providers have all been waiting for the next shoe to drop, now that the Office of the Comptroller of the Currency (OCC) has announced that it will consider applications for fintech charters. Meanwhile, Amazon has been quietly, methodically building a system completely outside of the chartered sphere.

Lindsay Davis, Tech Industry Analyst at CB Insights, points out that being a traditional, regulated bank requires idling huge amounts of capital as a buffer against risk. By not having a charter, “Amazon is free to use that capital to fuel additional growth,” she explains.

You can just hear Jeff Bezos thinking, “Bah, who needs regulatory approval? Ugh, messy and complicated!”

With Amazon approaching $1 trillion in market capitalization, Davis says traditional banks and credit unions have good reason to worry. If Amazon wanted, they could become a major force almost overnight.

And forget the industry’s wailing about a “level playing field.” Many industry commentators had already seen the OCC’s policy move as a step in a direction that might tip the competitive balance in favor of fintechs, bigtech and other outside disruptors.

Understanding Amazon’s Thinking

Many bank and credit union executives have seen the matter of “Bank of Amazon” through the filter of direct competition. But Davis says that traditional financial institutions are looking at the problem through the wrong end of the telescope. Amazon is much more about building out its own ecommerce world than it is about just becoming another “friendly neighborhood bank”… in just about every neighborhood on earth.

“Amazon is not building a bank by the traditional definition,” Davis explains. “Amazon is building financial services products to increase participation in the Amazon ecosystem. Amazon is building a bank for Amazon, and that may be even more compelling than launching a traditional deposit-holding bank.”

Davis suggests viewing the ecommerce giant’s efforts three ways:

  1. Enabling merchants. Amazon wants to increase the number of third-party merchants selling goods on its sites, and wants to enable them to sell more. When they do better, Amazon makes more money.
  2. Enabling customers. Amazon wants to increase the number of customers using Amazon, and wants to enable them to spend more in its ecosystem.
  3. Reducing buy/sell friction. Amazon continues to build and launch tools designed to make it easier for merchants and consumers to transact in its system.

Four Advantages Giving Amazon An Edge

According to Davis, Amazon has four things going for it that few traditional banking providers can match.

1. Huge amounts of funds to apply to every foray into financial services. In India, the company has publicly committed $7 billion to building its operations. “Amazon is unafraid to burn cash to win payments in India,” says Davis. The company has already gone through over $27 million in capital in order to produce a bit over $1 million in Indian payments revenue through multiple programs. If that happened in the U.S. with a traditional chartered institution, banking regulators would have had a heart attack.

2. Amazon is not reluctant to try new things, and can accept failure. Amazon learns from the failure. They aren’t afraid to shut something down, retool it, and roll it out again later. Davis says this is something Amazon has done this numerous times.

3. A huge population in its ecosystem. Davis says Amazon has 310 million active customers, 100 million Prime customers, 50 million Echo owners, and 5 million sellers. That’s a sizeable universe for cross-selling in every direction.

4. Vast troves of consumer data. Many analysts in the financial industry speak of the gold mines of data that banking providers possess. But if bank and credit union “mines” are full of gold, much of it is historical and hard to dig out. Amazon’s “mine,” by contrast, is stuffed with solid platinum that’s easily refined with the company’s huge processing power and the advantage of having leading-edge tools that are not mired in legacy systems. Amazon has stockpiled inventory and transaction data. As anyone knows who has shopped on Amazon, the company knows a huge amount about its consumers.

All this, and “Amazon is loved,” as Davis points out.

Amazon’s View of Traditional Banking

You might describe Amazon as an 800-pound gorilla in a Whac-A-Mole machine — one that has been building its lobbying presence in Washington, and (perhaps not coincidentally) has an owner who bought The Washington Post. Once someone thinks they’re catching up and that they’ve got Amazon figured out… WHAM! Amazon pops up again somewhere else. Again, and again, and again.

Amidst this never ending string of developments, you could easily get whiplash cranking your head around to see what Amazon is doing next. But Davis says it’s important for financial industry executives to stay calm and understand the company’s perspective on banking. Here’s how Davis sums it up:

  • Banking is seen as a big market with inefficiencies that Amazon can solve without a bank charter.
  • Amazon regards existing players’ technology and reputation as weak, and not meeting the demand for customer-centric products.
  • Amazon isn’t looking to be a bank, not in the typical sense. Instead, Davis says it seeks “synergies to Amazon’s current platform, strategy, and products.”

Davis notes that Amazon already has multiple financial services patents in its arsenal. (And the company maintains its own “skunk works,” the secretive Lab 126, which CB Insights describes as “the new Bell Labs or Xerox PARC.”) More currently, “Amazon has established key financial services beachheads and is actively looking for its next one.”

To a degree, while banks and credit unions fret about Amazon, the gradual nature of its experimentation, growth, and constant evolution can hide the sheer scale of what it has done in banking. It’s like the old joke about boiling a frog — do it gradually and it doesn’t realize what’s happening.

Amazon’s U.S. Financial Inventory Arsenal

Davis provides many examples of what Amazon’s been up to in the U.S. Here’s a sampling:

Amazon Go. This pilot effort may look like purely a retailing foray but it is also a payments play. Shoppers can grab and go, with biometrics recognizing them and charging their designated payments account. As the storefronts say, “No Lines. No Checkout. (No, Seriously.).”

Amazon Pay. This payments channel has 33 million customers in 170 countries, according to Davis’ research, reflecting multiple Amazon efforts to get into payments over a decade. The timeline was replete with misses, but the company persevered. The service has become a digital wallet that also serves as a payments network for the company. In India, there is the Cashload service. And in Mexico, traditionally a cash-based society to this day, and where many people are unbanked, Amazon Pay users are receiving debit cards for the first time in their lives.

Amazon Cash. Have you noticed those Coinstar coin counter machines in your supermarket? Thousands of them now enable people to turn cash and coins into Amazon gift cards. Consumers can also buy gift cards in many merchant locations and in Western Union and MoneyGram locations to turn cash into credits they can use in the Amazon ecosystem.

“Amazon Cash is a depository for cash, and is an alternative checking account for the unbanked,” says Davis. She adds that these people represent a growth opportunity for Prime. Davis notes that FDIC figures indicate that the U.S. alone has 35 million unbanked and underbanked households. Worldwide, an estimated 1.7 billion people without bank accounts live in economies where Amazon is building a local presence. Davis notes that about two-thirds of the unbanked population own mobile phones — creating a branchless banking play for Amazon.

Another variant is Amazon Allowance, a reloadable debit cards parents can provide to kids.

Amazon.com Store Card. Offered in partnership with banking companies, Davis says that these consumer cards, originated for Amazon purchases, have more recently been pushed as cards for broader, everyday use.

Amazon Lending. The company has been making loans to its third-party merchants. While company officials have spoken of partnering with banks in some fashion, to use their risk management skills, on its own it has made billions in loans to thousands of small businesses. Merchants can finance the inventory they sell on Amazon, Amazon makes money on the loan and on the sales, payments are obtained from sales proceeds, and the wheel keeps turning.

Amazon Protect. Here and there around the globe, Amazon is making forays into insurance services.

It’s always possible that at some future point, an actual chartered bank might have more appeal to Amazon, according to Davis.

“If incumbents don’t respond until Amazon does launch a bank as a key product pillar,” says Davis, “it will likely be too late.”

Just ask the frog.

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