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Why Amazon (AMZN) Wants to Be Your Bank

Is there any market too difficult for Amazon (AMZN) to want to disrupt?

Often criticized for what some perceive as misguided ambitions, CEO Jeff Bezos has made it his personal mission to tackle inefficiencies in the marketplace. In the process, he has made investors rich. There’s no point in changing now.

According the Wall Street Journal, Amazon — already a movie and music streaming company and a leader in voice-powered personal assistants — has held talks with JPMorgan Chase (AMJ) and Capital One (COP) to offer checking accounts to consumers. The Journal noted that Amazon is targeting “young consumers,” presumably millennials and people who have not held traditional checking accounts. Some 8% of American households don’t use banks, according to the Federal Deposit Insurance Corporation.

While that statistic doesn’t sound like a large consumer base, it is more impressive when put into context of a Gallup poll that suggests that 45% of U.S. households say they have “some” confidence in banks. This would suggest that Amazon does have an attractive opportunity. But how would it work? The Journal noted that Amazon’s product would serve as a hybrid account in partnership with banks, not in competition with them.

If this idea sounds familiar, it’s because Walmart (WMT), which offers its MoneyCard — a pre-paid/re-loadable debit card that gives shoppers a convenient way to pay wherever MasterCard or Visa cards are accepted — attempted something similar several years ago as a way to help its customers recover from the financial crisis. Walmart’s idea made sense, given the distrust consumers have had with major banks at the height of the crisis.

The company has since taken it a step further. In partnership with MasterCard (MC) and Visa (V), the MoneyCard also serves as a rewards program, offering 3% cash back at Walmart.com and 1% cash back at Walmart stores. Obviously, wanting to help its shoppers spend more at its properties, there are major incentives for Walmart to offer these banking services. It’s for the same reason Costco (COST) has partnered with Citigroup (C) to provide shoppers similar incentives.

In other words, within the retail space, what Amazon is attempting to do is not new. That said, everything has lined up for Amazon to not only succeed by offering checking accounts to customers, but take the program to the next level, particularly given the affluent demographic of its shoppers. Aside from realizing a cost reduction in terms of payment processing fees for Amazon, the program would make it increasingly difficult for customers to want to leave the Prime ecosystem.

Meanwhile, it’s tough to overlook the marketing and advertising insights Amazon would acquire, given the mounts of data in would attain by learning the its customer’s spending habits. In short, this is yet one more example of how Jeff Bezos, who now has his eyes on healthcare and after his acquisition of Whole Foods last year, is keeping his competitor"s awake at night.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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