A recent Bain study found that 74% of adults aged 18 to 24 expect to buy a financial product from technology firms in the next five years. Additionally, survey respondents of all ages ranked Amazon nearly as high as banks for trust with their money. Given the announcement that there are more than 100 million Prime members, the survey finding is staggering. Recent news suggests that Amazon is in talks with JPMorgan and other firms to develop a product resembling a checking account. As such, incumbent banks are keeping an eye on the massive e-commerce company.
Amazon is not the first company to offer banking functionalities without a U.S. banking license. PayPal began rolling out new features to select clients this month, including a debit card, direct deposit and mobile check deposit. The online payment company uses a combination of smaller banks to structure its supply chain and accommodate regulations while ensuring the process appears integrated and streamlined to its consumers. While a Delaware bank issues the debit cards, a Georgia bank deposits checks and a Utah bank makes the loans.
Despite new functionalities, Chief Operating Officer Bill Ready says PayPal does not intend to become a bank. The company does not pay interest on balances and charges a 1% fee on check deposits, leaving traditional banks as the obvious choice for users with the ability to maintain accounts. The company strives to help only those who cannot meet other firms’ account minimums or afford associated fees.
Sources speculate about a future checking account product, even though no announcements have been made. After all, Amazon’s $700 billion market value tops the combined value of JPMorgan and Bank of America Corp. Amazon is not the first company to enter the banking product arena, but its reach is massive. Like PayPal, Amazon seems to be more of a collaborative partner than a competitor. The company will need to rely on at least one financial firm to help create the product.
Amazon will most likely reduce fees it pays to financial firms and payment processors while collecting data on consumer spending behavior. A financial firm would be a great asset for creating the product and avoiding capital rules and regulations that crushed a similar endeavor by Walmart Inc. over ten years ago. For this reason, Amazon’s potential product is less likely to change the face of banking and more likely to provide opportunity for collaboration and expansion with existing banks.