According to the Journal, “The talks with financial firms are focused on creating a product that would appeal to younger customers and those without bank accounts.” Specifically:
Last fall, [Amazon] 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 Financial Corp., some of the people said. It is too early to say exactly what the product will look like, including whether it would give customers the ability to write checks, directly pay bills, or access to a nationwide ATM network.
At this point, Amazon is reportedly not considering pursuing a banking license, which would subject it to a significant regulatory process and potentially hamper the aggressive expansion of its core and new businesses.
Amazon’s interest in offering a checking account-like product is ostensibly aimed at helping Amazon reduce the fees it pays banks and payment processors. While Amazon already offers customers the ability to connect their accounts to their bank accounts for ACH payments, which typically have processing costs, if Amazon customers have an Amazon checking account, they might be more inclined to connect to and use that account to pay for purchases.
It’s also possible that Amazon could offer checking account customers incentives, and later develop other financial products that carry incentives. Already, Amazon offers branded Visa credit cards through JPMorgan Chase that gives holders three to five percent cash back on their Amazon purchases.
Success is not guaranteed
While the fact that Amazon is interested in partnering and not competing with banks is seemingly good news for banks that have already seen their businesses disrupted by smaller fintech upstarts, it’s not clear whether an Amazon partnership would be a net positive or net negative for a large bank.
On one hand, there’s no guarantee that an Amazon partnership would be successful. Case in point: in 2016, Amazon teamed up with Wells Fargo to offer members of its Student Prime program a 0.05% interest rate discount on their Wells Fargo student loans but the partnership was terminated weeks later for reasons the companies wouldn’t disclose.
On the other hand, if Amazon is successful, it could be a double-edged sword for the company’s partner bank. After all, the partner will gain deposits, but Amazon will likely largely own the customer relationship and experience, giving it significant leverage.
This highlights one of the newer dilemmas banks will face as the fintech revolution evolves and produces more partnerships: banks will have to figure out the best ways to partner with third parties ranging from small fintechs to huge companies like Amazon. While the latter have obvious appeal, banks would be wise to consider that partnerships under which they act as a service provider to another brand might not serve them well long term.