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Monday, January 28, 2019

Banking-as-a-service from Amazon?

News of early discussions between Amazon and several major financial institutions has been circulating in the financial community. On March 5, 2018, The Wall Street Journal reported the ecommerce company may partner with a U.S. bank to build a checking account product. The article, titled "Next Up for Amazon: Checking Accounts," suggested the product may appeal to unbanked and underbanked shoppers on Amazon's website.

"Offering a product that is similar to an own-branded bank account could help reduce fees Amazon pays to financial firms and provide it with valuable data on customers' income and spending habits," wrote WSJ journalists Emily Glazer, Liz Hoffman and Laura Stevens.

Current early-stage discussions began after Amazon's request for proposal for a hybrid checking account product. The RFP was reportedly sent to several major banks in the fourth quarter of 2017. Among the institutions contacted were JPMorgan Chase and Capital One. The journal's sources said Amazon's goal was to provide the services without establishing a bank charter.


A recent survey by LendEDU found nearly 45 percent of U.S. consumers would consider using Amazon for a primary banking account. An additional 39.1 percent of survey respondents were unsure, and 16.4 percent were against the idea. Among Amazon Prime Member respondents, 55.3 percent said they would open an Amazon bank account; 21.5 percent said they trusted Amazon more than they trusted their current banks. Full discussion of the LendEDU survey results can be found at lendedu.com/blog/amazon-virtual-currency-banking-insurance.

An additional study by Cornerstone Advisors found a majority of respondents would prefer fee-based Amazon checking bundled with other services, to a free, basic checking account. Jim Marous, co-publisher of The Financial Brand and owner and publisher of the Digital Banking Report, said these survey findings reflect the general commoditization of checking accounts.

"For decades, most traditional banking organizations have viewed the basic checking account as a 'loss leader,' with little attention paid to developing a customized relationship around this product," he wrote in a March 6, 2017, blog post. "In fact, even the movement towards digital banking and mobile banking has been driven by cost savings for the bank as opposed to a better experience for the consumer."

Marous speculated that Amazon would upend the traditional checking account model, using its advanced analytics and customer knowledge to personalize the consumer banking experience. He provided examples of how Amazon checking could drive profitability and market share:

  • Provide Amazon Prime at no cost to Amazon checking account owners

  • Offer exclusive movie, book, grocery and merchandise specials to high-balance checking account owners

  • Integrate checking account services with voice commerce to enable voice banking with Alexa

  • Put Amazon checking accounts in the center of Amazon's expanding ecosystem to hasten its goal of eventually displacing all traditional products and services

"In other words, Amazon could 'jump the shark' as it relates to open banking, working on behalf of the consumer to provide many of the benefits that could make the life easier … with the Amazon checking product at the center of the ecosystem," Marous wrote.

Fintech banking charter

The explosion of fintechs entering banking and financial sectors prompted the Office of the Comptroller of the Currency to distribute Exploring Special Purpose National Bank Charters for Fintech Companies. Published Oct. 17, 2017, the paper called for a uniform standard for banking entities and invited public commentary from October 2016 to January 2017.

In a Jan. 17, 2017 letter to OCC, Frank Altman, president and CEO and Nick Elders, vice president, technology solutions and services at the Community Reinvestment Fund, cited opportunities and risks in the banking charter. The executives conceded the charter would drive innovation and efficiencies, while attracting new market entrants, particularly the four largest U.S. technology companies: Amazon, Facebook, Google and Apple.

"Of the four largest tech companies in the U.S. (Amazon, Facebook, Google, Apple), only one (Amazon) has experimented in a significant way in the lending industry," Altman and Elders wrote. "Perhaps this is due to the absence of a clear path toward starting a national lending operation. However, as OCC considers how best to proceed, a special purpose national bank charter may be precisely what entices tech companies with highly trusted brands to enter the lending industry, bringing with them the reputation of delivering high-quality products and services so many people have come to rely on them for."

The CRF executives additionally warned that fintech business models are fluid and dynamic by nature, stating, "In pushing closer to the fintech world, OCC must understand they expose themselves to a rapidly changing and fast-moving landscape, historically at odds with an inflexible, and some would say, unnecessary, regulatory framework." end of article

Editor's Note:

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