Question

How an Amazon Bank Could Rival JPMorgan, Citigroup, Wells Fargo? Explain with 300 words, please. (Only Typing, no handwriting please and No Copy Paste sure)

Answer 1

Even if a banking relationship does nothing to increase purchases, Amazon would save hundreds of millions on credit card fees

Amazon.com, Inc.(AMZN) is in talks with banks to provide financial services like checking accounts make a lot of sense: Amazon wants to own every step of the customer experience, from shopping to delivery.

A new analysis from Bain & Company quantifies the return Amazon might enjoy if it embraces banking, beyond just adding a service to complement its existing ones.

"We could imagine Amazon's banking services growing to more than 70 million U.S. consumer relationships over the next five years or so--the same as Wells Fargo(WFC) , the third-largest bank in the U.S.," Bain analysts Gerard du Toit and Aaron Cheris wrote.

That assumes that "slightly more than half of Amazon's estimated U.S. customer base chooses a financial relationship" with Amazon, they added. That's not an arbitrary number, but the same share of respondents to a recent Bain global survey that told the firm they expect to buy a financial product from "a major technology firm" in the next five years.

"Of course, the pace of customer sign-up will hinge on competitive pricing and a distinctive experience so that positive reviews spread quickly," they add.

That's arguably Amazon's strong suit -- and stands in contrast to that of traditional banks. Wells has been dogged for months over news of customer misdeeds, but even Bank of America(BAC) raised the ire of customers and consumer advocates in January when it announced plans to end free checking accounts.

"Amazon has earned people's trust from the easy and reliable search, purchase, return and service interactions that together create a great experience for customers. A high level of trust primes people to buy."

The Alipay service from Alibaba(BABA) captured $1.7 trillion in total payments last year, they wrote, about five times as much as PayPal(PYPL) did. Rakuten, the massive Japanese platform company, has also had success transitioning into financial services, they add, which now account for 40% of its revenue.

Beyond just capturing a sliver of that market and solidifying its hold on customers already primed to buy, Amazon could also save big bucks by allowing customers to pay for products out of an Amazon account, rather than paying credit card companies' interchange fees: "more than a quarter of a billion dollars in annual interchange fees in the U.S. alone," Bain estimates.