Amazon abandons plan to provide bank accounts

Efma feature

28 November 2019

The tech rush into financial services has lost one member: Amazon.

The company announced they are abandoning their efforts to provide checking accounts in the United States. After exploring the initiative over the past year, Amazon decided to scrap the plan. The primary reasons behind them dropping the effort are believed to be regulatory concerns.

Financial regulations are entirely different from those of the tech industry. For this reason, tech companies that seek to expand their financial services offerings have two options. They can develop their products on their own. Or they can partner with financial institutions to handle the regulatory hurdles.

Recent attempts by tech companies to create financial services offerings are typically in partnerships with financial institutions. Google is working with Citigroup and Stanford Federal Credit Union to offer current accounts in 2020, and Uber is working with Green Dot bank to provide debit accounts and debit cards for their members, among others.

Amazon was no different, working for the past year with JPMorgan Chase in attempts to provide checking accounts in America. The venture was a possible money-saving opportunity for the Seattle-based company. Given the vast number of transactions that take place on its platform, the web giant could save millions if it did not have to pay the traditional transaction fees to external banks.

With the abundance of offerings and information in the world, consumers often seek an integrated proposition, a one stop shop, that can simplify their financial life. The bank branch has typically provided that service. With smartphone adoption and consumers spending their lives online, tech companies have created ecosystems and a suite of products that were traditionally reserved for banks.

The idea is for these tech companies to use their main attributes - digital ecosystems with easy-to-use, intuitive platforms with millions of users and their associated data – to provide personalized and elevated financial offerings.

But Amazon’s decision to abandon the current account project due to concerns it would be subject to further regulatory scrutiny highlights the obstacles tech giants face in their quest to be platforms for everything. Even with the obvious advantages these tech firms possess, the nature of financial regulations can prove to be too burdensome.

Tech companies are facing more scrutiny than ever before. Adding banking regulations and inspections on top of the global regulatory and political pressure they already face may prove too daunting a task. As such, cooperation, not competition, seems to be the immediate way forward for tech companies and banks as they vie for larger shares of consumers’ lives.

However, as demonstrated by the recent Amazon news, even cooperation is not a guarantor of success. It appears Amazon Bank won’t be created any time soon. In the meantime, their financial offerings will remain limited to Amazon Pay and an Amazon cash back credit card. Banks can breathe a little easier, for now.

Keywords : Current account , Business strategy/Model , GAFA/New competitors

Geography : USA