Amazon is reportedly in talks to offer bank accounts to its customers.
The move will likely not require the online behemoth to obtain a banking licence, as account holding will be handled by JPMorgan. The company is also reported to be in talks with credit-card provider Capital One.
Bragi Fjalldal, CMO, vice-president, product and business development at banking software company Meniga, says the move could finally be a wake-up call to the banking sector.
“Amazon are about to prove that it is possible to disrupt banking without a banking licence," he says. "If Amazon asks a bank to white-label their current account on favourable terms – who is going to say no to that? If this move by Amazon is a sign of what is to come, banking may look very different a few years from now.”
The US-based online retailer has already moved into finance by offering loans to sellers on its Amazon Marketplace. It has provided in excess of $3 billion in financing since the 2011 launch.
Following Amazon’s takeover of retailer Whole Foods, more customers are conducting a variety of their purchases through the website. By offering them banking and credit options, the company could be capturing the entire transaction flow for purchases from weekly grocery shopping, to the purchase of electricals and books.
Fjalldal says the arrival of open banking will make things even easier for companies such as Amazon to develop their own initiatives.
“Banks have had access to personal finance data at scale for decades without using it to build innovative services for their customers," he says. "With PSD2 and open banking, third parties are now lining up to offer a variety of new types of personal finance services such as account aggregation, subscription trimming and targeted offers based on spending profile analytics.”
These companies have seen what has been achieved by businesses in other countries, and want to explore how those services could be replicated.
Fjalldal says: “We are talking to companies outside the banking sector that are inspired by how China’s WeChat have expanded their digital ecosystem to include a variety of financial services. With PSD2 and open banking, there is growing interest in replicating this across Europe.”
As these developments become a reality, looking into systems which are more flexible in response to customer needs might be what banks have to do to ensure they keep their competitive advantage. And the tools they need to achieve this might well already be at their fingertips.
Mike Massaro, CEO of payments solutions provider Flywire, says the developments seen in payments from banks has been particularly slow.
“We’ve seen some important advances in mobile and peer-to-peer payments, driven by PayPal and others, but there has not been a lot of real innovation in the receivables process itself – especially for larger payments," he says. "Cheques are still in wide use – much more so than anyone would have predicted 10 to 15 years ago.”
Massaro says banks have a wealth of customer data that they are not using to their full advantage.
“We are starting to see some innovation in the ability to leverage customer data to automate and optimize the engagement with individual customers around payments," he says. "Targeted digital campaigns can be initiated that request payment and offer different options based on a customer’s specific situation or need.”
For these changes to come to fruition, an overhaul of how systems are programmed to work might be needed. Banks must also rethink how they do business.
Says Massaro:“Legacy systems or systems of record tend to be pretty inflexible when it comes to making adjustments to recognize unique customer circumstances or relationships. They are driven by pre-wired business process and rules.”
There are further options when looking at the available customer data to make more informed offers. Fjalldal explains there are already platforms readily available, but from his experience banks are slow to adopt, or do not promote the services in an attractive way.
Meniga's Fjalldal says: “Banks are in a great position to develop valuable products and services based on aggregated personal finance data, but so far few have taken full advantage.”
Fjalldal adds that there are even options already in existence which banks could leverage to promote customer relationships, and even be financially beneficial to them.
“Targeted card-linked offers are a great example of how banks can use data to provide value-added services to their customers,” says Fjalldal.
“By segmenting their customers based on their spending habits, banks can offer merchants access to very attractive consumer groups and, in turn, deliver highly relevant discount offers to their customers – and earn commission revenues in the process.”