Amazon could shake the banking industry to its core — but one expert says Wall Street can fight back

  • Amazon's reported foray into the checking account business is a scary proposition for the banking industry, given the company's reputation for disruption.
  • A partner at Bain & Co. argues banks can withstand pressure from Amazon if they focus on one key area.

When the news hit that Amazon was in talks with several banks to launch a "checking account-like product," naturally everyone feared the worst.

After all, this is a company that's taken multi-billion-dollar bites out of at least five major industries in the past year, often with only minor announcements. Armed with a war chest of cash and an ever-expanding network of customers, Amazon isn't afraid to throw its weight around.

7 shock-worthy facts about Amazon:

7 shock-worthy facts about Amazon
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7 shock-worthy facts about Amazon
7.5 percent of Seattle's working-age population are Amazon employees

Amazon has more than 300,000 employees worldwide, and 40,000 in Seattle alone.

As a portion of the city's working-age population — roughly 528,000 — that comes out to 7.5% of the city working at Amazon.

For perspective, if the same portion of New York City's adults worked for one company, that company would have about 488,000 locals on staff.

Amazon accounts for 43% of all online sales

Amazon used to be a way to buy books online; today, it's the default buying site for just about everything, especially for people who have Amazon Prime.

An analysis by Slice Intelligence released in February found that 43% of all US online retail sales were done through Amazon in 2016.

That's up from 33% in 2015 and 25% in 2012.

1 out of every 4 US adults has Amazon Prime.

Speaking of Amazon Prime, the company now counts approximately 63 million people among its subscriber base, or about 25% of the total US adult population.

That number may underestimate the true coverage, however, since it doesn't account for multiple adults in one household all sharing the same Prime account.

Amazon ships 1.6 million packages a day

Amazon fulfillment is a beast of its own.

A report from 2013 (the latest year for which data are available) found Amazon shipped 608 million packages that year, or 1.6 million packages a day.

As of 2015, Amazon estimated its fulfillment centers were within 20 miles of 31% of the US population, and within 20 miles of 50-65% of its core, same-day-accessible market.

That's enough cardboard to span all of West Virginia

A back-of-the-envelope calculation reveals all those packages (not including padded envelopes) yield roughly 26,400 square miles of cardboard.

The total land area of West Virginia, meanwhile, is just north of 24,000 square miles.

Given the speed of Amazon's shipments, the company could blanket the whole US in cardboard in about five months.

45,000 robots roam the floors of Amazon's warehouses

To help those shipments leave the warehouses on time, Amazon relies on a growing fleet of autonomous robots that fetch packages from their shelves and bring them to human employees.

The 45,000 robots live across 20 fulfillment centers in the US. In 2016, the company increased the fleet 50% from its prior head count of 30,000.

Amazon is more valuable than all major brick-and-mortar retailers combined

The sum total of those investments in infrastructure and supply chain management have made Amazon by far the most valuable retailer in the United States.

Amazon's $356 billion valuation is so big, it's larger than Wal-Mart, Target, Best Buy, Macy's, Kohl's, JCPenney, and Sears combined.

With the recent acquisition of Whole Foods, there are no signs the retailer has any plans of slowing down.


But the situation for banks may not be as dire as some seem to think — at least yet.

That's according to Maureen Burns, a Boston-based partner at consulting firm Bain & Co. and a co-author of a recent report analyzing Amazon's foray into financial services. She argues banks already have some inherent advantages, and could withstand pressure from Amazon if they focus on customer service.

"Banks are in a position where they can catch up, and do it quickly," Burns told Business Insider by phone. "They need to identify where their customer experience lags, and find the right partners to get the experience to the level of a big tech provider."

In particular, there seems to be some catching up to do when it comes to digital channels. In the Bain & Co. report, the firm found that only around half of US survey respondents strongly agreed that their primary bank’s website lets them do everything they need. That percentage fell to 31% for primary bank apps. In contrast, US millennials list Amazon as the app they can't live without.

But for now, banks still have a leg up when it comes to their massive balance sheets, which offer the type of liquidity necessary to run a checking account operation, says Burns. She also notes that whatever banking business Amazon does launch will need the regulatory clearance and backing that big banks currently have.

With those two elements already working in their favor, Burns says it's up to banks to improve their outward-facing interactions with clients. In the end, her point is that while Amazon needs to rely on the cooperation of large financial institutions, all banks have to do is focus on themselves.

"It’s not simple to change a banking relationship, so customers do it when they get really frustrated, or can’t do what they want to do," said Burns. "Banks need to get ahead of that."

Easier said than done? Perhaps. But no one ever said fighting off Amazon would be easy.

Navigating the 'trust gap'

The topic of trust and how it impacts consumer behavior is something Burns touched upon frequently, while Bain's recent study also discusses it in detail. And based on their findings, it's a factor that could very well decide how things unfold as Amazon pushes into banking.

To hear Bain tell it, the company is off to a great start, with a trust ranking that puts its mega-cap technology peers to shame. This can be seen in the chart below, which shows consumers are far more likely to trust Amazon with their money than the likes of Apple, Google, Microsoft, or Facebook.

Screen Shot 2018 03 14 at 3.48.25 PMBain & Co.

You'll notice, however, the massive chasm that still exists between Amazon and primary banks. It suggests Amazon still has a ways to go — although Burns notes the difference used to be far more pronounced.

"The trust gap between banks and tech players wasn't as big as we would've thought, and it's getting smaller," said Burns. "But client trust, and convincing people to put money with them, is still an enormous barrier."

With that in mind, if big banks are truly going to withstand Amazon's last industry-disrupting push, they'll also have to combat chief executive officer Jeff Bezos' famous mantra: "Your margin is my opportunity."

And that may be the toughest task of all — since they're nowhere near as diversified as Amazon, which makes them ill-equipped to deal with a margin squeeze.

"[Amazon's] model is about getting into a bunch of things, innovating, being willing to experiment, being willing to take risks, being willing to lose money — and then finding the really profitable places where they can play," said Burns. "Banks absolutely need to be thinking about this. Amazon looks to be in it for the long game."

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