There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders.
– Jack Ma
This is a quote from Jack Ma, which is about a couple of years old, where he described the difference between Fintech and TechFin. Fintech as we all know is a space where financial services is delivered through a better user experience using cutting edge technology.
TechFin on the other hand is where a firm that has been delivering technology solutions, launches a new way to deliver Financial services. Although I haven’t seen TechFin being used in a mainstream context as much as Fintech is.
As I often allude to, China’s giants have created a leapfrog Fintech (rather TechFin) moment through Alipay and WeChat. While the action in the East has clearly eclipsed the west in terms of sheer size and pace, over the last few weeks Amazon and Amazon Bank have been in the news often.
Earlier this month, @jellerm (Jessica) wrote about how Amazon checking account could affect Mastercard and Visa. A research by Bain, points out that Amazon could have some serious success in disrupting banking. They estimate about 70 Million users for Amazon’s banking services within the next 5 years. Also, surveys conducted by Bain point to the trust consumers have on Paypal and Amazon to delivery Financial services.
Bain also have published that 75% of consumers under the age of 25 trust financial services delivered from a technology firm. So, the strategy for Amazon would be to target its Millennial base who are currently more likely to go with them for their banking services. If that happened, banks will have a more serious competitor in Amazon than the Fintechs they are grappling with today. But can Amazon do it?
Retail giants trying to get into consumer finance is not new. It has been tried before by Walmart – albeit half heartedly when they tried to get a bank charter. Costco and Sears have also tried to break into consumer banking, but none of those attempts were successful.
I believe that trusting a firm with a simple financial product is different from trusting them with the lifetime earnings one has got. The business of managing consumer’s money is underpinned by the trust consumers have on the firm.
As a consumer, I wouldn’t mind going with a challenger bank for a Mortgage product or a credit card if the rates were good. But I would prefer a Barclays or a HSBC to hold my salaried account. May be this will change as millennials start to become the major customer base of banking service providers. I think its easier to get the Millennials to adopt the next cool thing in banking – say, transferring funds to a friend using Alexa. But to move one’s primary bank account to a technology provider feels like a huge leap from where the world is today – even for Millennial customers.
Amazon already has a huge online lending business for its SME merchants and it is a sticky offering. And the Bain research predicts that they could easily expand into mortgages, property insurance, life insurance etc., But as an Amazon customer, I fail to understand the user journey for these products. If a simple checking account could be used as a wallet with rewards for online purchases, that is a product that a user might be willing to set up.
However, I struggle to see what the use case for Amazon’s other financial services would be. May be they would create a platform for FS products as a separate offering to their current retail experience, much like Amazon prime videos or AWS. I fail to see how this would be a sticky service.
It is a great thing to have a huge customer base and all their retail transaction history. But to be able to leverage that asset into a sustained financial service engagement is a different gig altogether. But, Amazon entering the banking industry would make banks more nervous than Fintechs trying to eat into their margins.
Amazon could save about $250 Million in Credit card interchange fees every year if it can find a banking partner for its checking account. In a scenario such as that, it makes all the sense to provide that as a solution to customers. However, to further enhance FS offering capabilities, feels like too much of a gamble – even for Mr.Bezos.
Arunkumar Krishnakumar is a Fintech thought leader and an investor.