Amazon is already a grocery store, a leader in voice-powered personal assistants, a television and movie production company and will soon become a delivery service.
Financial services may be next on its list of industry disruptions.
Amazon AMZN, +1.74% is in talks with major banks including JP Morgan Chase JPM, +2.88% about building a product that would function like a bank account for its customers, according to people familiar with the matter, The Wall Street Journal reported Monday. The project is in its early stages, may not come to pass and is intended to appeal to younger consumers and those without bank accounts, the paper reported. Amazon is not planning to become a bank, but will partner with a bank to create new products.
Amazon did not respond to request for comment. JP Morgan Chase was not immediately available for comment.
Amazon has already reached out to people who don’t use a bank
The unbanked or underbanked may be an attractive prospect for Amazon, experts say. About a quarter of consumers say they have “very little” confidence in banks, or no confidence at all, according to a 2015 poll by the analytics company Gallup. Roughly 45% said they have “some” confidence.
Many consumers are also afraid of high fees at banks, which sometimes charge for not meeting minimum balances, or charge $30 or more for overdrawing an account. As a result, roughly 8% of U.S. households don’t use any bank at all, according to the Federal Deposit Insurance Corporation. That equates to nearly 10 million Americans.
This is a familiar brand to many low-income Americans
Those consumers may actually trust Amazon more than they would a bank on its own, said Ryan Tuttle, a senior consumer finance analyst at the market-research firm Euromonitor International. “Amazon is providing name recognition,” he said. Plus, they may not necessarily see it as a bank account, even though it provides many similar services, he added.
Amazon ranks No. 7 in the top 10 global brand rankings, according to consumer perception company YouGov BrandIndex. It ranked behind Google GOOG, +3.02% (No. 1), YouTube, Facebook FB, +1.58% Samsung, 005930, +1.10% WhatsApp, and Apple’s AAPL, +1.72% iPhone. A financial services company didn’t make the Top 10 list.
It’s not the first time the company has reached out to the ‘unbanked’
Amazon already has debuted products for consumers who are “unbanked,” meaning that they don’t have accounts at traditional financial institutions. Last year, it launched Amazon Cash, which allows consumers to re-load what amounts to essentially an online gift card.
A checking account-like product seems to be a natural extension of that, Tuttle said. Payment companies abroad, including Alibaba BABA, +1.80% and Rakuten RKUNF, -2.76% have already started similar systems, he said.
Amazon already has expertise in making positive and seamless consumer experiences to perfect the checking account, said Alyson Clarke, a principal analyst at the research firm Forrester. “Most traditional firms fail to truly understand the customer and curate those experiences,” she said.
Amazon checking accounts would have one big challenge
The challenge for Amazon: Solve some of the problems consumers have with traditional banks, including high fees, Tuttle of Euromonitor said. The average overdraft fee at a bank is $30, according to Moebs Services, a research and consulting firm that focuses on financial institutions.
What’s more, Amazon may include perks for consumers who are subscribers to Prime, he said. One suggestion: Offering the $99 annual Amazon Prime membership at a discounted rate if consumers link their account to an Amazon bank account, instead of a credit card, he said. “There’s a lot of potential,” he said.
Should consumers be concerned about their privacy?
“Amazon can already guess at how much money I have,” said Karen Petrou, a managing partner at Federal Financial Analytics, a financial consulting firm based in Washington, D.C. “If it knows, will it jack up prices? Those are conflicts of interest already embedded in big data.”
Consumers, however, seem willing to hand over a lot of personal data in order to get benefits like convenience, Tuttle said. And Amazon already access to a lot of information about consumer behavior through its voice assistant, Alexa.
There’s also an opportunity to use consumer spending data to provide more rewards and make their loyalty programs better, Clarke said. “It could be interesting and completely change the game,” she said. “Banks may need to step up on their checking accounts.”