Here we go again!

If the news Monday that Amazon might be teaming up with a large bank on a major endeavor felt familiar, you were correct.

Several weeks ago, Amazon and JPMorgan Chase sent a flutter through the health care, banking and payments worlds when they announced that they were two of the key players in a joint venture that would somehow (the details were a little vague) seek to drain the expense of out employer health plans and improve patient care.

Then came the report Monday that Amazon had put out requests for proposal to banks to power an Amazon-branded checking account that would be aimed at young consumers and the unbanked. The details were even vaguer this time, and Amazon reportedly could select JPMorgan, Capital One Financial, another bank or perhaps several of them.

But for banks this Amazon effort was much more a direct threat than the health one — or was it? One read on the situation was that it meant Amazon had decided not to become a bank, as many banking industry officials had long feared, and instead had decided to partner with banks.

Still, the more folks mulled the implications in the hours that followed, some fundamental matters became clear. Big banks could be the biggest winners and losers here, because research suggests their customers are the most apt to bank with an Amazon; so whichever big bank or banks get selected could have a leg up on their larger rivals. And there are all kinds of questions about how the banks would make money, and whether Amazon or the bank(s) would be in charge.

Here are five takeaways on those issues and more that clarify the stakes and provide guideposts for understanding what happens next.

The target here is millennials and Gen Xers, and big banks in particular have to be on guard.

Young adults are the customers who are most likely to want a bank account from a tech giant like Amazon. Folks in their 20s, 30s and 40s are substantially more likely to have an Amazon Prime account than their parents.

In one recent survey, the consulting giant Bain found that 75% of respondents between the ages of 18 and 34 said that they would try a tech firm’s deposit account, credit card, investment or mortgage.

“One thing that’s been interesting is the level of trust in players like Amazon has increased over the last few years,” said Maureen Burns, a partner in Bain’s financial services practice.

Referring to millennials, she said, “As these companies have become so pervasive and such a big part of their lives, customer trust has increased.”

One consequence of that demographic split is that large banks may be more likely to lose customers to Amazon than small banks. Young adults have been drawn in recent years to the big banks’ digital prowess.

In a recent survey, Cornerstone Advisors asked bank customers whether they would open a free checking account from Amazon if it were to offer one. Among megabank customers, 35% said yes. At community banks, only 12% gave the same answer.


Survey of bank customers on their interest in free checking from Amazon

A deal could create a "whole new world" in cross-selling.

Perhaps the biggest competitive advantage from a deal with Amazon is the potential for banks to cross-sell a large base of new customers — and to do so in a highly personalized way.

As foot traffic has dwindled at brick-and-mortar branches in recent years, banks have looked for new ways to pitch products, such as checking accounts, to customers online. So far their efforts have mostly fallen flat, in large part because of the collective shortcomings of the industry’s core banking technology, Burns said.

But a deal with Amazon could give JPMorgan Chase or Capital One new — and highly lucrative — opportunities to sell financial products.

Survey of bank customers' interested in Amazon checking with monthly fee


“It could open up a whole new world of cross-selling potential,” Burns said, though she cautioned that the benefits would depend on how the partnership is structured. “If you just think about the sheer amount of data, it would enable a level of personalization and analytics that frankly would make a new level of cross-selling possible.”

Think of it like this. JPMorgan — like many big banks — is currently running a promotion in its retail bank, offering up to $200 in cash to customers who open a qualifying checking account.

If the company were to offer a checking account alongside Amazon, it could instead offer $200 toward an Amazon purchase, or come up with new ways to bundle its promotional offers.

“You could see the potential for a bank to say, ‘Hey, Amazon Prime members, we’ll pay for next year’s subscription fee if you open this account,’ ” said Ron Shevlin, director of research at Cornerstone Advisors.

Representatives of JPMorgan and Capital Onedeclined to comment for this story, and Amazon did not respond to a request for comment.

Additionally, JPMorgan or Capital One would benefit from potentially being able to access Amazon’s troves of customer data.

Shevlin pointed to the recent efforts at JPMorgan to attract high-spending millennials through its Sapphire Reserve credit card. If the bank were to gain access to the data Amazon has on customers’ spending patterns, the New York megabank could better target its credit card rewards.

“You’ve got your Sapphire customers, and you want to go after the big spenders,” Shevlin said. “Well, hello, Amazon Prime will tell you everything you want to know — who the big spenders are, and the big [spending] categories.”

Speaking of which ... there could be a tug of war for control of the data.

Amazon already has a tremendous amount of information about its customers. But the company knows more about what its customers buy from Amazon than it does about their spending behavior elsewhere.

Depending on how a potential partnership is structured, an Amazon bank account could give the tech behemoth a deeper understanding of U.S. consumers.

“Giving them access to bank-account level data would give them a whole new treasure trove of information about their customers,” said Julie Hill, a banking law professor at the University of Alabama. “I do think that is the scariest part of this.”

James Wester, research director at IDC Financial Insights, said that Amazon is likely
to face questions about its access to and use of consumer data if the bank account becomes reality.

“It’s going to be something that they’re going to have to have a ready answer for,” he said. “As a consumer, I’m going to start thinking, ‘Oh, they’re looking at all my purchase behavior.’ ”

The issue of how much control over customer data Amazon is able to wrest also has big consequences for banks as it is part of the equally large question of who controls the customer.

Amazon is likely to want control over the customer relationship, too.

The Seattle-based tech firm inspires fear across so many industries in large part because of its maniacal focus on customer experience. From its one-click checkout process to its same-day delivery service, the Jeff Bezos-led company is constantly striving to raise the bar on consumers’ expectations.

Amazon’s well-established blueprint suggests that any partner bank or banks will have to take a backseat when it comes to customer experience. That could mean that when customers encounter a snag, they will talk to an Amazon employee. Or it could mean that Amazon will establish strict parameters regarding the customer service that is provided by the bank.

Either way, Amazon’s latest moves are likely to stoke fears in the banking industry that tech giants will extract a large portion of their profits by establishing control of customer relationships.

“Amazon, as a business matter, always seeks to control the front end,” said Todd Baker, a banking industry consultant.


Amazon could pick more than one bank.

Among the many unanswered questions surrounding the Amazon deal is whether the e-commerce giant plans to sign an exclusive arrangement with a big bank to offer checking accounts.

While JPMorgan and Capital One are reportedly in the final stages of consideration, Amazon could stand to benefit from inviting other big banks into the mix.

“I cannot possibly see Amazon doing an exclusive arrangement with any one bank on this,” Shevlin said. He noted that a large part of the Seattle company’s success has come from providing customers with choices — and encouraging rival sellers to compete on price.

“Their whole thing is about providing a choice of providers,” he said.

If Amazon does strike deals with a number of banks, either in the short term or further down the road, it’s likely that only the biggest players in the industry will be able to compete for such a contract, according to Shevlin.

The name recognition and digital capabilities among the megabanks are simply much stronger than their small and midsize peers, he said.

Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.
Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.