The Amazon-ification of Banking
Around six years ago, you could do a search online for ‘digital banking’ and not find anything, yet only a year later there were early concerns about whether bigtech or fintech would eat existing banks’ lunch. Back then I used to present this as a shark (bigtech) taking large chunks out of banking, and piranhas (fintechs) taking smaller (mono product lines) chunks, writes Dharmesh Mistry.
Since then, concern about fintech has waned, neobanks/challengers have appeared and concerns about bigtech has heightened. Yet none of the GAFA (Google, Amazon, Facebook, Apple) have launched their own licenced banks. Although, Alibaba has spun out Ant Financial and is making strong headways into financial services from the west.
While the Uberization of banking has driven a number of banks to “remove friction” and “re-imagine” customer journeys (more on this to come in a follow up post), what can banks learn from what I call the “Amazon-ification of banking”? Before I answer that, let me first say what should be obvious is that there isn’t a one size fits all solution for digital – the Amazon-ification of banking is just one option.
One of the key differences with Amazon is that as a customer, you see Amazon as a distributor of products, with no bias for their own brand products and that customer interaction is consistent irrespective of the product. This is perhaps the main challenge for most banks – the product silo driven processes for customers. For example, it might take four minutes to apply for a credit card, but two weeks for a current card, for many banks the disparity in experience across product silo’s is very real.
So, what can banks learn from Amazon? In a nutshell it should have these key features:
- Competitive pricing
- Assisted decision making
- Self-service help
- Conversational Interface
- No product silo’s
MarketPlace: Amazon didn’t start out being a manufacturer of products, so becoming a marketplace has been easy. Banks have been white-labelling third-party products for many years, however, this is an exclusive relationship. The difference with Amazon is not only that this is a non-exclusive relationship, but they also provide the third-party a platform to setup their own shop on Amazon. While Starling would like to see itself as a marketplace bank, it is only Fidor that has managed to provide the Amazon equivalent for banking.
Competitive pricing: With such a strong platform, Amazon is able to price products competitively, while still giving the customer the option to use a third-party provider. How? Well, rate chasers are always going to go for the best deal, so probably best to take a margin from competitors than lose the deal entirely. Another demographic will look at the difference and value convenience and trust in the brand so pay that little extra.
Offers/rewards: This to me is pretty simple with an extensive data set and diverse product set, it’s possible to incentivise a cross sell of products based on other customers’ behaviour. To an extent, some banks can learn from this, but generally they lack the diverse product sets to really take advantage. However, some banks and credit card companies do provide broader schemes.
Recommendations: With the advent of money management tools, making ‘recommendations’ is something banks have started to take advantage of, but the vast majority really have some way to go. The real difference is that regulations around financial advice make this trickier than in retail.
Assisted decision making: Similar to recommendations, banks have to be more careful when making product recommendations to ensure they don’t fall foul around regulations for providing financial advice. However, aggregators in financial services provide strong product comparison capabilities and provide solution specific calculators to aid decision making already.
Self-service help: For a long time, Amazon support was purely online, and while they do not support some assisted channels, their online help is very strong. In banking it is surprising that many online banking services don’t provide help on all their app features let alone help on banking transactions not supported by the app.
Personalisation: Customers can personalise their use of Amazon by tailoring user experience preferences (preferred delivery address, payment card etc.). However, it’s not just their experience, they also personalise offers and recommendations.
Conversational Interface: Amazon provides Alexa as their conversational interface, making it easier to place orders or add items on your wish list. It also supports a marketplace of speech apps. Imagine if banks provided this and supported products from third parties e.g. micro investing, P2P lending. This would not only allow banks to offer a broader range of financial products and services but also ensures the bank is at the heart of the customers financial world. A number of banks have already created conversational interfaces, but none have done so beyond their own products.
Engagement: Banks channels are generally transactional except when it comes to sales and advice. Amazon provides both omni-channel and bi-directional engagement, and like banks they are much stronger in sales than in service when it comes to engagement. Engagement is a key area where banks can excel beyond Amazon thus truly establish their position as trusted adviser for their customers finances.
Product silos: If you buy a pair shoes, TV and book, Amazon has one checkout process. However, in banking, this is done differently by product. Changing personal details, tracking an order, placing an enquiry… all of these are agnostic to the product and are handled in one way by Amazon, and the opposite is true of banks. This aspect is by far the greatest learning banks can get from Amazon, that a pure focus on the entire customer relationship and consistency of processes is what really drives loyalty in the role of a product distributor.
So there you have it, there are at least ten things banks could look at to Amazon-ify themselves. I’m sure there are more and I know I’ve skimmed these ten at a high level, but my goal was to help you see what banks could learn from a global leader in product distribution.
Does this advantage in retail mean that Amazon could take on banks? The answer is YES, but maybe not for the obvious consumer market, instead for the merchants. By not only providing a platform for merchants, through Kabbage, Amazon can also provide those merchants with finance. If Amazon can make merchants successful on their platform, both parties grow. This is a real trick that will be difficult for banks to compete with. Today, banks only see merchants as an opportunity to sell financial products, they do this at arm’s length with a very basic understanding of the merchant’s accounts. However, Amazon makes margin on what those merchants sell AND can provide finance with strong knowledge about how well their shop (and their competitors) on Amazon is doing.
This begs the question: do banks truly understand the threat of Amazon and others like Uber when it comes to banking?
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to AI and Virtual Reality. He has been on both sides of the fence and he’s not afraid to share his opinions.