OBSERVATIONS FROM THE FINTECH SNARK TANK
Speculation that Amazon—which already offers a host of financial services including payments and lending products—will offer a checking account has been around for a few years now.
“Put out a request for proposals from several banks for a hybrid-type checking account and is weighing pitches from firms including JPMorgan and Capital One.”
We didn’t hear much about this until November 2019 when Banking Dive wrote:
Really? This doesn’t seem to be a problem for challenger banks who rely on existing banks’ licenses and compliance capabilities to deal with regulatory matters. And Google—which will launch a checking account soon— doesn’t seem to have a problem with the regulatory aspects of a checking account.
Is an Amazon Checking Account Imminent?
A flurry of recent articles on various websites have raised the possibility of an Amazon checking account, including articles on:
- MyBankTracker. A June 3, 2021 article said, “Various news outlets have reported that Amazon is looking to venture into the financial services industry—a checking account could be in the works.”
- MoneyUnder30. A June 2, 2021 article claimed that “Now Amazon’s getting ready to roll out checking accounts. It’s still in the early stages, but it looks like eventually it could come into fruition.”
- DoughRoller. A June 3, 2021 article reported “Amazon recently slipped the news that it will be offering an online checking account. The company, known for taking over existing businesses and products, looks to be preparing to jump into banking.”
The DoughRoller article cites the March 2018 Fintech Zoom article as its source of information and the other two articles don’t cite any sources. Personally, I haven’t found any recent sources indicating, or even hinting at, plans for a checking account from Amazon.
Do Consumers Even Want an Amazon Checking Account?
A recent consumer study by Cornerstone Advisors suggests there would be strong interest from consumers for an Amazon checking account (and from other Big Tech players like Google, for that matter).
To be accurate, the study asked Amazon Prime members:
Overall, 62% of US consumers are Amazon Prime members—including seven in 10 Millennials and two-thirds of Gen Xers—so the study captures a good percentage of the consumers most likely to be in the market for checking accounts.
The study found that roughly four in 10 Gen Zers and Gen Xers, and almost half of Millennials, would open an Amazon checking account if it were bundled into the Prime subscription. Of those Prime members, more than half said the account would be their primary checking account.
This is pretty remarkable considering that 90% of the consumers expressing an interest in a fee-based Amazon checking account don’t currently pay any monthly fees on their checking accounts.
Why Hasn’t Amazon Launched a Checking Account Yet?
After announcing a partnership in 2020 with Goldman Sachs to provide small business loans to merchants on its platform, Amazon demonstrated its willingness to partner with large financial institutions.
With strong interest from Amazon Prime members willing to pay an up-charge on their annual Prime fee to get a checking account from Amazon, it would appear to be a no-brainer for Amazon to partner with a financial institution to offer an account.
On the other hand, you could argue that it doesn’t make sense for Amazon to partner with just one bank for a checking account offering. After all, Amazon is a platform—and platforms provide a choice of providers for products and services, not just one.
The Economics of a Checking Account Marketplace Don’t Add Up
Q. How much money could Amazon really make by creating a checking account marketplace?
A. Not a lot.
Consumers don’t shop around for checking accounts very often—they add new accounts in response to promotions or when looking for specific features like early access to their paycheck, high interest rates, or international money transfer.
The argument for partnering with a single financial institution seems much stronger. Sure, Amazon would have to split interchange revenue with its partner, but the company’s ability to have insight into the spending activity of its best customers—Prime customers—could pay off in many ways.
So why isn’t Amazon partnering with a bank to offer a checking account yet? I can think of two reasons:
1) Amazon wants to create a digital account opening capability. Many banks still struggle with digital account opening. Cornerstone Advisors has found that more than half of financial institutions are interested in partnering with a fintech company for digital account opening.
With Amazon’s deep information on consumers, it could perform identity verification, KYC, and account onboarding functions more efficiently than the banks can.
A partnership with—or acquisition of—a fintech in the account opening space makes more sense than Amazon acquiring a bank, which has been a point of speculation for a long time.
2) Amazon is building a better checking account. This is, fundamentally, what Google has done. The Google Plex account will have a number of unique and intriguing features that leverages Google’s merchant connections and technology capabilities. Surely Amazon can come up with something that leverages its merchant platform and the many Amazon Prime members that make a large percentage of their transactions on the Amazon platform.
The Coming Amazon Checking Account
My money is on #2 (it used to be on #1).
The “regulatory burden” excuse for not partnering with Chase or Capital One is nonsense. Amazon didn’t partner with either of those banks because the economics of the partnership didn’t make sense.
And previous speculation that Amazon would acquire a large bank makes no sense at all. If Amazon were to acquire a bank, it would find the smallest, cheapest bank with the right charter and license it could find.
With the expected launch of the Google Plex checking account in Q3 2021, it would be great if Amazon launched a checking account soon. The combination of the two products would really shake up the banking market.
For a complimentary copy of the Cornerstone Advisors report Competing with Google Plex and the Digital Banks, click here.