'Prime' isn't just a rate anymore: Banks, tech and the 'Amazon Effect'
by Dr. Louise Beaumont, strategic adviser, Sapient Consulting
The news that Amazon is looking to develop new checking accounts, with a specific target on underserved customers and millennials is unsurprising.
Those still in denial that Amazon wants to expand — and the key word is expand since Amazon already offers financial services — can no longer deny the trend of tech titans and large data players wanting to win the hearts, minds and deposits of consumers and small businesses.
Data, trust and scale. These are often cited as the three core elements to "winning" in financial services, with the implication being that banks have these in abundance. So, too, do the tech titans — more so, I would argue.
Potentially partnering with an incumbent also removes another worn argument that these firms don't want to get a bank licence, or be regulated as such.
The explicit target audience is also interesting and speaks to segments of the customer base that have been poorly served.
Just look at the bank statement of any twenty-something. You'll increasingly see the rich spending data from a millennial's daily life giving way to fewer, bulkier transactions: Venmo payments; transactions via Apple Pay; PayPal transfers; and a credit card bill paid off monthly in exchange for customized rewards.
Maintaining an insular mindset in the face of the digital and data revolution has led to the underwhelming yet ubiquitous "me-too" innovation attempts of many banks.
They nod to millennials with their mobile apps, sure, but poor functionality means those apps take twice as long to log in to and don't provide the instantaneous notifications that smartphone users expect. Spending data can appear days after a transaction occurs, while monthly statements offer no insights or tools to manage records, analyze spending, budgets, or save for the future.
All of which is to say that millennials may tolerate banks, but that's not the same thing as the banks offering them what they actually want or need.
Similarly, banks refuse to adapt to the realities not only of how people bank, but also of how they live. Thanks to the gig economy and distributed workforces, millennials are more likely than previous generations to be peripatetic and both earn and spend money in more than one country.
In other words, in a world where data is currency and a customer-centric experience is king, banks are lagging far behind. They continue to obsess about their existing industry competitors because tech titan disruption is antithetical to the cosily oligopolistic product-push approach that banks have had for decades.
Amazon's logistics and delivery infrastructure, its access to personal data about purchasing habits and patterns, places it in a unique position. Far more so, I would argue, than Google.
Amazon has the insight, the infrastructure and, most importantly, the vision to build and deliver, at scale, the next generation of financial services. It also has a shareholder base that expects growth, and a service-centric ethos that makes people want to take up their latest offerings.
Working with an incumbent could be a win-win for both partners. I believe we will see many more of these types of announcements over 2018 as tech titans and banks look to new ways of working to serve new generations of customers, as well as those that have historically been locked out of traditional banking.