Commentary
Heads up banks: Amazon is now your competition
Kitewheel President Mark Smith offers up insight on why Amazon's move into traditional banking should scare other banks thanks to its very loyal customer base that is willing to follow the company into other areas outside of traditional e-commerce.
November 30, 2018
By Mark Smith, president, Kitewheel
For years, banks have felt pressure to upgrade their customer experiences to match those of modern companies like Amazon, Venmo and Uber — with 73 percent of U.S. millennials saying they'd be more excited by a new financial feature from a company like Amazon or Google than from their bank.
Meeting this challenge is difficult, however, because banks are traditional and purposefully built to be stable. Most were created long before the digital shift that occurred in the last decade, so they're playing catch up to digitally native companies. Still, banks are aware that customer expectations are changing thanks to the superior customer experiences offered by those companies that deliver a cohesive customer journey across digital space.
For the past five years banks have tried to model their experiences after these tech companies to outdo their traditional competition. But even this has started to change as many technology companies are moving into the banking and financial services sector, the biggest being Amazon's partnership with JP Morgan to offer checking accounts and Apple's partnership with Goldman Sachs to create an Apple Pay credit card. These partnerships will allow the tech companies to tap into the banks' strength in regulatory compliance and customer trust and also serves as a wake up call to the banks that haven't yet made strategic partnerships with tech companies.
Amazon's new partnership and move into traditional banking should scare other banks. The tech giant has a very loyal customer base that is willing to follow the company into other areas outside of traditional ecommerce. Just look at the success of AWS and their foray into groceries with Amazon Pantry and Prime Fresh. Banks do not enjoy the same loyalty. On the contrary, their customers — especially millennials — have been quick to jump to online credit unions and apps like Venmo when they thought they'd find better experiences there — four in five millennials are now using person to person payment apps.
JP Morgan and Goldman Sachs have the right idea — it's better to partner with technology companies than try to compete with them. When it comes to digital products, tech companies will simply come out ahead. Consider that when the banks tried to compete with Venmo by creating Zelle, a similar product, it that lacked the social features millennials covet and therefore had a worse customer experience. Zelle has seen a decent adoption rate, but not among millenials whose business banks are trying to attract the most.
Banks need to heed the lessons of other industries that went through similar disruption points. Automakers tried to develop their own navigation technologies and failed to beat the tech companies that continue to dominate the maps and navigation market today. They thought that consumers would want to buy a car with an included navigation system, yet people continued to use third-party systems like Garmin and Google Maps on their phones because they were more accurate and therefore provided a better experience. It wasn't until a few years ago that carmakers caught on and started partnering with the tech companies to offer tech like Google Maps in their cars. Banks should avoid repeating this snafu by partnering with tech companies from the onset, much like JP Morgan and Goldman Sachs have already done.
They should stop trying to invent new technology or replicate what already exists, and instead stick to what they do best — banking. Simply put, if you can't beat them, join them. To compete with the newly partnered banks and their technology counterparts, the remaining banks should look to partner with companies that can compete with Amazon and Apple. Time is ripe for this, as many tech companies have already moved into the banking and financial services space including Google and Samsung with their mobile payment options. Even Facebook allows you to send money directly through the website. Not to mention companies like Venmo (owned by PayPal) that were created with the sole purpose of improving an aspect of financial services that the banks had yet to address.
By partnering with these companies, banks can add best-of-breed technology to their portfolios and inherit some of the customer loyalty that tech companies enjoy thanks to their superior customer experience. This process will be beneficial for the tech companies too, as they may have trouble breaking into the heavily regulated banking and financial services space and also lack the public trust that banks enjoy when it comes to managing their money.
