Like a football team captain at a junior high dance, Amazon just sauntered up to a big group of people and started dropping hints about its sweet moves on the dance floor . . .
Okay, that’s not exactly what’s happening here, but it sure felt like that to many bank executives who heard the recent news that Amazon may start offering checking accounts. Will these be Amazon-branded accounts with banks playing an invisible, back-end role holding the actual deposits, or will Amazon partner with and promote established bank brands?
No one yet knows what exactly Amazon will do, but Forrester has a strong view on what Amazon should do — and what bank execs should do in reaction. You can read our take, including an open letter to Amazon, in a new report Oliwia Berdak, James McQuivey, and I just published.
Simply put: If you’re a bank executive, you have three options (but fair warning, only one is easy, and you won’t want to do that one):
- Win like Amazon. Forrester routinely hears from bank execs with lofty plans to transform their firm into a “platform” — often followed by “like the Amazon of financial services.” This is a nice turn of phrase, but it will not happen for most banks. But a few banks have the chance to emulate Amazon, which excels at customer entanglement: entwining itself with the customer’s daily behaviors. Winning like Amazon will be a huge task with no success guaranteed, but a necessary first step is dramatically upping your own bank’s development and use of APIs. Barclays in the UK, BBVA and Deutsche Bank in Europe, Citi in the US, and DBS Bank in Singapore have all launched developer platforms to experiment and explore open innovation.
- Win with Amazon. The vast majority of banks cannot and will not become the “Amazon of financial services” for numerous reasons. For execs at these banks, your job is to explore where your services — and hopefully your brands — fit into Amazon’s ecosphere. Amazon’s vast customer base will appeal to smaller banks in search of distribution, so these firms may offer a white-labeled bank-as-a-service, holding deposits and running back-end processes. Other banks will design niche services that visibly create value for customers within Amazon’s ecosphere: For example, point-of-sale lending is an area where banks can provide the loan itself — plus a trusted brand name.
- Lose. As customers’ lives become increasingly enveloped in Amazon’s and other players’ ecospheres, many firms will lose insight into and relevance to people’s lives. Even some national banks with the scale and spend to try to win like Amazon will end up playing a role only in the back end of people’s interactions and transactions — a role that is invisible to the customer herself. This invisibility will undermine many banks’ leverage and damage their profitability and long-term growth.