Online retailers are convenient. But is there anything more convenient than doing your banking where you shop?
That’s Amazon’s next big idea, according to The Wall Street Journal. They reported this week that Amazon is in talks with financial institutions to launch a ‘checking-account-like’ product.
Amazon’s banking services would likely be aimed at low-income customers, according to Business Insider. There likely wouldn’t be any fees associated with the account. Astonishingly, there are roughly 15 million people in the US that don’t own any form of bank account. That’s more than half Australia’s population.
With Amazon expected to have low or no account fees, their aim could be to tap this unserved sector.
Bank of America analyst Justin Post told CNBC that ‘…Amazon’s aim with expanding its financial offering is less about disrupting the financials sector and more about increasing engagement on its own marketplace.’
A person without any form of bank account would find online shopping very difficult. So the move makes sense.
Amazon has a similar process in place already. Amazon Cash allows you to upload money into your Amazon account, but you have to go through a convenience store. So using an Amazon bank account may make the process even easier.
However, is that all there is to it?
There may be a case in Amazon’s future to open up their banking services to rival the established banks. Many corporations have tried and failed to open up their own bank, such as Walmart. Amazon may be testing these waters before they decide to open a larger range of banking services, including financial services and advice.
In October 2017, McKinsey & Co claimed in their 2017 annual report that the banks should fear Amazon.
The authors of the report wrote:
‘We thought that fintechs would provide the chief digital threat…
‘[Companies like Amazon] are reshaping one industry after another, blurring sector boundaries as they seek to be all things to all people.’
Amazon is currently the world’s biggest retailer. This gives them a large customer base not just in the US, but all around the world. Australia is one of those countries, with Amazon building a warehouse and head office in Dandenong, near Melbourne, in 2017.
Asheet Mehta, an author of the McKinsey report, stated in an interview with Bloomberg:
‘You have companies that have hundreds of millions of customers, offer a great customer experience and trade at a currency that rewards revenue, but not necessarily profit growth…
‘They are under pressure to keep increasing revenue, and financial services is a large pool they can go after. We’re starting to see that.’
Mehta even went further to explain how Amazon, and companies like it, could have their own bank:
‘There’s no reason they can’t offer deposits…
‘They could have bank providers in their mall, like they do with lots of other merchants. If anybody wanted to not have a bank charter, that is one way you would do it.’
However, this is all simply speculation for now. Whether Amazon decides to go into financial services, or even eventually create their own bank, remains to be seen. And if it were to happen, it could still be a long way off.
But the implications could be enormous for the big banks and financial firms.
If you want some ideas into how to potentially protect your money from disruptions to financial markets, check out Vern Gowdie’s The Gowdie Letter here.
This week in Money Morning
In Monday’s Money Morning, Harje looked at a leading US investment fund, and the huge risks that have dragged its performance down. Harje looked at how they went wrong, and the lessons you can learn for your own investing. To find out more, you can find Monday’s article here.
In Tuesday’s Money Morning, Harje looked into the predictions of interest rates expert, Jim Grant. He believes Australia’s bond bull market has come to an end and he has some concerns for us Aussies. Harje also takes a look at Grant’s predictions for US bond yields, and how they could affect our market. To read Grant’s thoughts on Australia and the US, click here.
On Wednesday, Harje discussed a $3 trillion piece of real estate, Silicon Valley. For decades, it’s been the tech hub of not only the US, but the world. Nowadays, all the biggest companies have their headquarters there, such as Facebook and Apple. However, as Harje said, now there’s another place where companies are setting up their headquarters, and it could be the beginning of the end for Silicon Valley. To find out more go here.
In Thursday’s Money Morning, Harje discussed the difficulties of picking the right stocks. Can an artificial intelligence succeed where humans struggle? A new experimental investing system is showing early signs of success. Only time will tell if it can surpass the human element. But Harje looked at one crucial aspect of its design, one that you can incorporate into your own investing. To read how, you can find Thursday’s article here.
In Friday’s Money Morning, Harje looked to technology. Technology that a lot of us are already familiar with. Think Apple and Facebook. Yet, when both began they weren’t really ‘new’ technologies. But why do Apple, Facebook and Amazon work so well, whereas MySpace failed? And while these companies are very popular in the US and the West, why not China? To find out how China is beating the US at their own game, go here.
Editor, Money Weekend