A Report Shows Amazon Is, Piece By Piece, Assembling a Bank

It gets clearer every day that banks have work to do if they’re going to remain at the center of their customers’ financial lives, as more and more companies, be it upstart fintech companies or well-established technology firms, seek to disrupt the traditional banking relationship.

The examples are numerous, and attract glitzy headlines, led by Amazon, which seems intent on trying its hand at banking.

A recent report from CB Insights walks through the myriad ways the ecommerce giant is positioning itself to be, what some are calling, the Bank of Amazon. It’s not there yet, and may never be, according to some analysts, but it’s certainly making a run at it.

For bankers, this is nothing new. Amazon has long been viewed as a potential threat, but it hasn’t brought widespread disruption just yet. This could soon change, however. Amazon has purportedly been in talks with JPMorgan Chase & Co. and Capital One Financial Corp. about offering a checking account-like product, the core of any banking operation. This would be on top of Amazon Cash and Prime Reload, which allow customers to move funds from a traditional bank-managed account into a digital wallet. It’s also had co-branded credit cards with JPMorgan for years.

It was announced earlier this year, moreover, that Amazon has joined JPMorgan and Berkshire Hathaway, Warren Buffett’s company, in an effort to establish a health insurance company for their employees, collectively totaling some 1.2 million people. It’s the latest grab by the companies at creating an unbreakable relationship with American consumers.

Amazon has gotten into lending, too, backed by Bank of America. All told, Amazon has already made $3 billion in loans to more than 20,000 independent retailers on its Marketplace platform. The borrowers are invited to borrow and half of them take a second loan.

And it’s not just Amazon. SoFi now plans to offer multiple depository products as well, products which it struggled to get off the ground after former cofounder Mike Cagney was ousted in the wake of a sexual harassment scandal. With a combined checking-savings account product that pays up to 1.1 percent interest, it’s only a matter of time before the creep of non-banks like SoFi threaten the core deposit products offered by banks, regardless of FDIC insurance.

Some banks, though, have been able to spot and partner with companies that offer these alternative banking options. Ally Financial, Live Oak Bank, SunTrust Banks, NBKC Bank and, yes, Amazon all invested earlier this year in Greenlight, an alternative debit card for kids that’s backed by Community Federal Savings Bank, based in Jamaica, New York, and MasterCard.

The CB Insights report suggests there’s time for banks to adjust, but community banks with limited technology budgets will be left to watch and learn, or focus their attention on depositors they know they can keep.

In a digital age, bankers should understand that no matter the size or scope of the disruptor, they still have an advantage—the financial data they have on their customers—which will continue to grow in value as technology and analytics become more sophisticated, Jim Sinegal, a senior equity analyst at Morningstar, wrote in March.

That data may be the key that allows banks to maintain a healthy bottom line, according to Deloitte’s Banking Industry Outlook for 2018: “Banks that successfully target customers through sophisticated data analytics, make compelling product offers, and deliver strong digital experiences, could gain funding advantages and see slower increases in deposit costs.”