Do we need an Amazon bank?

Do we need an Amazon bank?

Milan Panchmatia Blog, Retail

My personal and family shopping habits have changed over recent years, and like many we spend an unreasonably large proportion of our money shopping with Amazon. At Christmas time the procession of delivery vans clog up our street and whilst we don’t ‘tip’ the milkman anymore at Christmas I can see a time when we will do so with the delivery driver.

The reliance and ease of use of Amazon and its ‘Prime’ delivery service have provided us with access to goods and services that enable us to live our lives in the manner we want to, no more reliance on the physical store. I can have the majority of things I need delivered overnight, or in many cases within an hour direct to my door. If I don’t need to go to a physical store for detergent, I’m definitely not going to go, there are better things to do.

This level of convenience and accessibility for many products is great but it doesn’t stop me visiting stores where the experience is part of the delivery model. This element of experiential design is key in keeping customers happy, whether it’s through the addition of a coffee shop inside the clothing store or the ability to customise products at the point of purchase, it delivers the value add that many of us are looking for.

As an online store Amazon doesn’t have this, but for the majority of products I buy from them it doesn’t have to.  The news this week reports that Amazon is looking to go into the banking business, partnering in the US with JP Morgan. This to me make perfect sense on a number of fronts. The banking model they look to employ could work in exactly the same way that that we buy products. For me the banking model doesn’t need to be an experience, it just needs to be functional, and this is what Amazon does best. I’ve not been into a physical branch for about 10 years, and to be honest, if I can avoid it for another 10 I will do so.

Over the next five years its reported that they could amass more than 70 million customers, this would make them the third largest bank in the US. Take that data point with the economics of running the physical branch infrastructure, which normally accounts for 40% of all running costs, couple this with a benefit of an estimated additional $250m in credit card fees that they would avoid, all of a sudden it starts to make sense.

With so many of us are already spending our money with Amazon, Apple and other online services, the level of trust that has been built is likely to be quite high. So, whilst persuading people to switch accounts from one provider to another has historically been quite hard, new customers are likely to look at this low cost, digitally slick competitor in a favourable light.

The real question here for me is not if this going to happen, or even when, but who is going to be the loser. Given the way the digitisation of markets has moved and if we look at the relationship between the movie studios and Netflix, of the music companies and Apple, are the banks going to look back on any collaboration with Amazon in such a favourable light, when in a few years when the service has truly become commoditised?