Amazon’s Impact on Core Banking
Amazon is forcing innovation in core banking. Large retail banks are investing significantly in building digital banking platforms. However, adoption rates have room for improvement. Legacy systems and culture from branch-only banking days still exist. Customer expectations on digital experience are heightened. Many of the developments being made in digital banking today are efforts to emulate the digital experience and capabilities that Amazon provides its customers. This includes, intelligent banking agents that leverage machine learning from customer interactions, a page from Amazon Alexa’s “book.” Development of self-service portals are reducing demands on banking call centers. Predictive analytics are used to determine what products and services consumers might want next.
The banking industry is ripe for continued disruption and Amazon is quietly moving in. Roughly half of online spending in the U.S. happens on Amazon and consumer increasingly make use of Amazon payment methods. The threat of Amazon making more deliberate movements into banking, taking great market share from retail banking organizations, is imminent. Removing bank intermediaries would reduce transaction costs for Amazon and their customers. Direct banks will only keep customers if they are able to advance new developments in application based banking and increase integrations with emerging alternative payment providers. Although, younger customers would prefer to not visit a branch, many older customers still prefer to do so.
Amazon’s acquisition of Whole Foods and launch of Amazon Go (smart stores), shows that they are willing to compete in brick in mortar. Having the knowledge and experience in stores could position them to offer light bank branch like services. With younger consumers being ok receiving machine generated assistance and advice, expansion of Amazon financial services could likely migrate into wealth management. The battle for deposits is being fought amongst traditional banking firms, but the battle for customer loyalty will ultimately determine where the financial services war is won. Over the coming years, banking firms will need to determine if they are willing to evolve into technology companies, survive by partnering with technology leaders, or be ok with decreasing market share.
