Written by Alex Letts, Founder of @unbanker
Unless you were off-the-grid last week, you will have probably seen a story about Amazon entering the banking arena. As one blog headlined it “Amazon Bank: will banking’s worst nightmare come true in 2018?”.
The story that ran in the London Financial Times on March 5th was that Amazon was in exploratory “talks” with JP Morgan to offer “checking” (aka current) accounts in the US.
The scarcity of details was ominous. This seismic event should have shaken the board-rooms of every retail bank in the world. And whilst the prospect of Amazon getting full banking licences, operations, logistics and so on globally, might seem a tall order any time soon, it meant that the starting-gun had been fired. Even if Amazon merely partners with JP Morgan, that’s enough to set off a string off similar partnerships, and a round of meaningful disruption.
What the UK retail banks should and almost certainly do fear most, far more than fintech erosion, is waves of attacks on their business by global technology giants; these completely alien life-forms have unlimited cash, great innovation, huge, loyal customer databases, and massive brands. That is far more existential to the banks than losing a small number of customers to some bearded fintech. Indeed, fighting off the relatively small fintech start-ups even seems to have become a pretty low priority, since the initial panic from 2012. Shovel out a better app, a tip of the cap to Open Banking, attend some fintech shows and soothing noises to the FCA, and that’s it; all pretty much parked for now, allowing the old boys to get on with some more serious stuff.
Well forget it. This is now a different game. And you know the oddest thing about it? Those who were once foes must now become buddies. It’s like war. Fight those who most threaten your life, forget history and become allies with those who can reinforce you. If that happens to be your most recent foe, well, so be it.
The big retail banks certainly have most to lose from the threat of Amazon and (coming soon) Google and Facebook. PayPal should not be sniffed at either. These banks know that they are extremely vulnerable. They lack the vision, innovation, spirit, and technologies to greenfield a formidable response. They need the fintechs, and they need them now. Foes no more. Buddies. The value of fintechs just went up a click or two.
But it’s a 2-way street, believe me. For the fintech babies, the Amazon news will have made them nervous. If Amazon and Google and others become bankers, where’s the long-term role for small digital banks? What’s so exciting about a shouty app-based bank versus the tech appeal of the mighty customer-centric, all-embracing Amazon with zillions of customers?
The ghastly certainty is that, if the fintech banks want to avoid becoming collateral road-kill carelessly squashed by the tech tanks as they roll onto the front lawns of the big retail banks, they need an alliance just as badly as anyone.
We used to talk about “ICE”: Internet Changes Everything. Well now it’s ACE, Amazon Changes Everything. Old battles will stop, and new alliances will be forged. Banks plus fintechs. It was always the destiny by the way, but now, there is a Burning Platform, called survival. The battle-lines are now fully laid out.