By Ruth Park '21
Early last week, The Wall Street Journal reported that Amazon has begun exploring partnerships with several financial firms, including JPMorgan Chase & Co. and Capital One Financial Corp. The Seattle-based e-commerce giant has been considering bank pitches for a hybrid-type checking account since last fall. If launched, Amazon would offer the service to its current retail customers, specifically targeting millennials, who not only have rapidly-shifting financial habits and preferences, but also do not hold many bank accounts.
Despite the tentative stage of this venture, Amazon’s motivations for launching a banking product seem to be quite clear. Allowing customers to directly debit an account for Amazon purchases would reduce the large transaction processing fees the retailer currently pays to financial firms. The product would also grant Amazon access to troves of income and spending data that would strengthen its ability to offer individually tailored purchase suggestions. Moreover, an own-branded account may help Amazon Pay overcome its struggles with a fragmented market. Amazon is reportedly planning to introduce Amazon Pay in brick-and-mortar stores and is likely to first introduce the payments service to Whole Foods Market, which the giant purchased for roughly $13.7 billion last summer.
Amazon’s $700 billion market value, easy access to capital, data, and customers, and terrifyingly swift expansion into new markets (more recently, groceries, delivery, and health-care), all presented the possibility of entering the banking industry as a competitor. However, strict federal regulations and capital requirements and anticipated retaliation from established firms pushed Amazon to pursue a friendlier strategy.
Amazon is not the first retailer to attempt to enter the financial services sector: Walmart Inc. abandoned plans for a special banking charter in 2007 after scathing criticism from industry officials, lawmakers, and watchdog groups. Sears, Roebuck and Co. bought brokerage firm Dean Witter, Discover & Co. for $607 million in 1981, which it subsequently divested in 1993. It will be interesting to see how Amazon enters and navigates the ever-changing financial services landscape going forward, especially given the numerous “FinTech” firms increasingly extend their reach.