Amazon or no, banks are in for big changes, one analyst says
What does the “Amazon effect” signify to the banking business?
In the years since the 2008 financial disaster, banks have invested many billions on compliance, cleared up their balance sheets, and attempted to encourage authorities, law makers, and ordinary Americans that they’ve learned their lessons.
March 2018, And as the banks trudged meticulously along, attempting to repair their businesses, Amazon.com Inc. AMZN, 1.74% has been busy growing others, from retail to food to logistics.
Now it appears the market-slayer has its own sights set on banking, too. The Wall Street Journal announced Monday that Amazon is at talks with JPMorgan JPM, 2.88% as well as others about making a product much like a bank account.
Karen Petrou, MD of Federal Financial Analytics, a Washington-based consultancy, told MarketWatch the news was no real surprise. Petrou called this type of step “the natural evolution for any platform company like Amazon or Google into financial services” due to the troves of consumers – and data on those customers – the businesses have.
Banks have already been so busy fighting the final war, the fallout from your financial disaster – and atoning for this, when you are held back from innovating quickly – that fintech upstarts are defining what the way forward for financial services may be like, and getting market share because they go.
For all of the debate about other shifts in the financial services world, from blockchain to peer-to-peer lending, “this is definitely the big one,” Petrou said of Amazon’s entry. It’s “the classic fork within the road moment” for banks, having a big shift ahead in the manner many conduct business, she said.
“Banks are sitting on huge number of consumer financial data however they don’t understand how to deal with it,” Petrou said. “The platform companies are big data companies.”
However that synergy should boost warning signs for consumer advocates, she added. The platform companies have “a huge inherent capability to become a natural monopoly in anything they touch. Take a look at what Amazon has been doing to retail – it knows a great deal about how exactly much we buy, when, and where. You will find significant financial risks (to consumers). Amazon can already guess at how much cash we have. When it knows, can it jack up prices?” For the time being, not one of the existing U.S. regulators have jurisdiction spanning a new paradigm such as this one, Petrou said.
Amazon has experienced a lengthy-standing relationship with JPMorgan Chase, that has offered an Amazon charge card for a long time, suggesting it may be well-positioned when the retailer partners having an existing bank. However more commonly, it’s not clear who the winners and losers throughout banking is going to be, Petrou said. Still, she thinks that over time, a lot of banks will shift to some “distributed” model where they offer the rear-office financial services infrastructure while other, more consumer-friendly brands, would be the company’s face.
“Any bank that views itself in the old manner, because the across-the-board consumer provider, has a serious problem in front of it,” she said.
For the time being, major bank investors don’t look very concerned about looming disruption. Shares of Citigroup C, 2.70% , JPMorgan Chase, and Bank of America Corp. BAC, 1.61% are up between .6% to 2% in the days because the Wall Street Journal article appeared. Shares of Wells Fargo & Co. WFC, 2.66% are down about 1%.