Will Amazon disrupt banking?

Could we soon be opening an Amazon bank account and getting loans and mortgages from the e-commerce giant? The e-commerce delivery expert ParcelHero says the UK finance industry can bank on it.

Is Amazon preparing to move into banking? Reports earlier this year that Amazon was considering buying the US bank Capital One highlight the fact that controlling how we buy goods, as well as where we buy them, would make a great deal of sense for the US giant.

And the e-commerce delivery specialist ParcelHero says Amazon could well be looking at the UK banking sector too; thanks to a change in regulation in 2013 that has allowed a host of new online ‘challenger banks’ to join the established high street players.

ParcelHero’s head of consumer research, David Jinks MILT, says speculation continues that Amazon is interested in Capital One in the USA. “It’s one of the top ten American banks, worth around $334 billion in assets, and has a huge credit card portfolio. While Amazon’s planned purchase of Whole Foods has got the US Government concerned about retail monopolies, an acquisition in a totally unrelated sector should not result in similar problems. Capital One has already made its services compatible with Amazon’s Alexa smart speaker and the potential future opportunities are very significant.”

And it’s a move that would also work well in the UK. Local bank branches may now be harder to find on your high street than dodos, but the UK’s online banking industry is mushrooming, says Jinks. “Well over 9,000 bank and building society branches have closed in recent years; but online around 50 new banking sector companies have been announced since the regulations were eased. However, we believe the established banks’ stiffest battle will come not from a direct banking industry competitor, but from that ultimate in industry disruptors, Amazon.”

“As a result of the loosening by regulators in 2013, an A-Z of new companies from Atom Bank to Zopa have been announced.  Amazon’s undoubted interest in Capital One probably points the way to the future. Amazon could create its own UK bank from scratch, but that would involve overcoming significant regulatory hurdles. A number of those ‘newbie’ UK challenger banks are already consolidating and some may well welcome an approach from Amazon. A challenger bank takeover looks the most likely scenario. Owning its own bank would be a key step towards Amazon’s long-term goals.”

ParcelHero’s latest industry analysis reveals Amazon is already a surprisingly significant player when it comes to finance and lending here in the UK. “Amazon has already become a fully-fledged money lender to UK SME retailers. Amazon makes loans to merchants in the US, UK, Europe and Japan through Amazon Lending,” says Jinks. “The division has made loans totalling over well over $1.5bn. Using its internal data to assess suitability, Amazon typically provides loans for three to six months of between $1000 and $750,000.”

The company also already has its own UK credit card. “The Amazon Platinum Mastercard gives reward points whenever you shop on it; but, behind the scenes, its UK card is actually run by NewDay, with Amazon simply acting as a credit broker. Were Amazon to create its own bank, or buy an existing provider, access to full credit card information would give it even more vital data about its customers’ shopping behaviour.”

Amazon’s payment services are also advancing steadily: these allow online vendors on its Marketplace site to take payments across the US and Europe. And that’s by no means all, says Jinks. “In 2016, the e-commerce firm rolled out “Pay with Amazon” across France, Italy and Spain — a PayPal-like service that allows users to pay for non-Amazon purchases including government services, insurance and travel.”

It’s not just retailers that benefit from Amazon’s lending and credit services. In some markets the e-commerce giant is now offering a deferred payment facility to consumers too.

Jinks believes there could be a very significant market for an Amazon bank. “Would we really want an Amazon bank account, or do we only trust the established big banks? According to a recent survey by Accenture, 40 per cent of global millennial respondents reported that they would consider switching over to an Amazon (or Google) bank account. Millennials in the US were even more enthusiastic, with 50 per cent saying they would consider banking services from the e-commerce giants.”

Think of the perks an Amazon bank could use to lure more people to join the Prime membership scheme. From more attractive rates of APR, to added points when you buy on its cards, Amazon could attract a new group of Prime members, Jinks explains. “And remember those members spend around twice as much as non-members with Amazon.”

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.