If Amazon enters into financial services, as announced in a Wall Street Journal report earlier this week, the tech giant may steal two crucial customer demographics from credit unions: the underbanked and millennials.
Amazon is reportedly in talks with JP Morgan Chase and Capital One about creating a checking account-style product for customers, and while there are plenty of issues in play for larger financial institutions, those two demographics may be the biggest concerns for most credit unions.
This kind of deal would not be out of the ordinary for Amazon. Already this year, the company’s founder Jeff Bezos joined forces with JP Morgan’s chief executive Jamie Dimon and Berkshire Hathaway’s Warren Buffet to create their own healthcare company for American workers.
“Amazon is the most dominate force in retail,” explained Mark Sievewright, financial services consultant, founder and CEO of Sievewright and Associates. “It has all the attributes you would expect — except for a banking charter — to be a very dominant force in banking. But I think we are going to see partnership approaches rather than disruption in banking from Amazon.”
While the deal could reduce transaction fees for Amazon, it may not bode well for credit unions of any size that are trying to serve the underbanked or younger customers.
“You could think of a rewards program tied to a product like that,” Sievewright said. “We know that incentives work well at the consumer level.”
Amazon is an even greater threat to credit unions than big banks, warned Ted Bilke, CEO of San Diego, Calif.-based Symitar. While banks are more concerned with commercial relationships, Amazon is a tech giant that actually shares credit unions’ focus on creating a positive overall experience for consumers.
“Amazon is really good at customer experience and personalization,” Bilke said. “They are going to compete directly against credit unions. We encourage our customers to improve efficiency, be more nimble, adapt a mobile first strategy, improve customer experience, monetize data, have more personalization and bring AI into the model.”
One of Amazon’s main competitors, Walmart, attempted to get a banking charter more than a decade ago but was denied.
“There’s a healthy segment of underbanked customers in Walmart’s stores,” Sievewright said. “I think given Amazon’s core competencies come back to this belief that the organizations that have strong products are able to be experts in analytics and data management, and offer superior experiences are going to be winners in these circles. Amazon checks all those boxes in retail.”
Sievewright also believes credit unions must find more opportunities to partner with fintechs. He cited CUNA Mutual Group’s committed investments around fintech and Digital CU’s fintech lab as examples of ways the movement can better align itself with this growing industry.
But competition in this space is nothing new for credit unions.
“Credit unions have already been dealing with these nontraditional banking threats with fintechs,” added Sievewright. “The key for CUs is to make sure they focus on outstanding member experience and provide the kind of value that credit union members have benefited from substantially.”