Creating Impact — Is Amazon poised to violate the banking category?
“Progress is cumulative in science and engineering, but cyclical in finance.” — James Grant, author of Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken
Commerce. Trade. Banking. Currency. These are pillar words in the economy of a country and the world. Modern banking systems play a pivotal role in capital formation. They facilitate international trade.
How did the modern banking category originate?
I’m a history buff. Going back in time is my favorite part!
The origin story of the banking category is closely linked with trade and money. Before the modern currency-driven economy, we had the gift economy. The gift economy helped maintain social relationships between tribes and people.
About 5000 years ago in Mesopotamia is apparently when the first know currency came into existence. The Shekel it was called, in the form of gold and silver coins.
I remember “studying” Adam Smith’s Wealth of Nations in college. Economics was my weakest subject. But the history of economics and trade always fascinated me. In the book, Adam Smith writes of the barter system. It’s something I learned this too in history lessons in school.
But new evidence as detailed by The Atlantic suggests that the barter system wasn’t as straightforward as Adam Smith made it out to be. That it was intricate and required days of planning and “banqueting”. Not much unlike the trade missions of today. Where we wine, dine and entertain before coming to the nitty-gritty of trade agreements.
However, it happened one thing was certain there was an exchange of goods and services.
As people accumulated “wealth” a need for a central institution to store said wealth and manage it emerged. Initially, it seems temples filled this role. They used to store the money, and also lent it to those who required it.
Money lending was not a central function controlled by the state in the early days. It was done by wealthy individuals. Eventually though, during the time of the Roman Empire “banking” become institutionalized.
And yet there are many parallels that can be drawn. Banks were for the wealthy and money lenders were for the poor. Sound familiar? Seems we have retained our early capitalistic ways.
Back the Roman Empire and banking. So what happened to institutionalized banking when the Roman Empire fell? They went away too. But the laws governing the banking system prevailed.
- Laws in place to “protect” banks
- Banks having the ability to seize and foreclose property etc., for non-payment of debt
These form the foundations of today’s banking system too.
The modern banking category as we know it today evolved from Adam Smith’s philosophy. From there thanks to the efforts of individuals like Alexander Hamilton, banks have become what they are today.
The global commercial market size is worth about $2.5 trillion.
This brings us to the problem we are faced with today. Do any of us really like banks? Or banking? The worst thing about becoming an adult for me is having to deal with banks and financial institutions.
Even with technology such as banking apps, online banking, e-wallets, etc, dealing with banks is a chore. I never know what they are charging me for and the paperwork is insane. If ever there was a category in dire need of a total overhaul it would be banking.
So when I got the CBInsights report detailing what Amazon is doing in financial services, I got inspired and excited.
Money is personal. It's personal to the individual because it's connected to what we buy, how we spend, and who we spend it on. It also impact-driven. The impact individuals and organizations can cause with money is inherent. It's also emotional.
But if I put a category lens on it, banks and the banking category have made money impersonal. Something functional. A means to an end. A number on a spreadsheet.
Amazon is reimagining the financial services and banking space but without the conventionality of what makes banks well banks.
- With the Amazon Cash facility, we can add cash from any of the participating stores to our Amazon balance. According to the Amazon website, there is no interest or fees. We also don’t need our credit or debit cards. It can also be used to buy stuff at any of the participating locations. A “bank account” with the bank! It’s perfect.
- Amazon Pay allows us to pay to other vendors using details we have saved in our Amazon account
- Amazon also has a lending service for SMEs who wouldn’t normally be able to obtain a loan via conventional banking means
In addition, Amazon is said to be considering offering checking accounts to under 18-year-olds and younger millennials. I am not exactly in the younger millennial category but I would sign up for it and seems my peers agree.
Cornerstone Advisors conducted a survey:
Here’s what exciting about these recent developments. Amazon understands people. It understands customer experience. Their first leadership principle is — customer obsession.
Leaders start with the customer and work backward. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
We aim to be Earth’s most customer-centric company. Our mission is to continually raise the bar of the customer experience by using the internet and technology to help consumers find, discover, and buy anything, and empower businesses and content creators to maximize their success.
Amazon also has its own version of Jim Collins’s flywheel effect. And Amazon is a category creator and leader.
Additionally, if we have complaints or queries, we don’t have to wait in a call queue. Alexa can give us the information we need. No more boring blanket credit card offers. Like I’m a vegan, when are the banks gonna stop sending me offers for KFC chicken buckets and nuggets?
Amazon can tailor and send me financial product offers based on my spending pattern and buying behavior. Suddenly money has started to become personal again.
For bank executives and board members, this is a watershed moment. As hard as they have worked to catch up, banks still lag in the performance of their digital channels relative to Amazon and other major tech firms. Source — https://www.bain.com/insights/bankings-amazon-moment
Here’s the other key issue — trust. I dunno about you but I trust Amazon more than say my bank. Because I trust their customer experience and service. I also believe it to be more transparent than traditional bank statements.
Hailing from South Asia and being a digital native, I can tell you banking in this part of the world sucks! There is no other word to describe it. The wait time is long! It's complicated. And I can’t make sense of it. The worst part — I have to speak to a human every time I need something done. It seems I am not alone in feeling that way.
At the risk of sounding like a 5-year-old, I don’t wanna talk to a human.
I prefer Alexa. Amazon has already started changing the category landscape of banking. It's also making it personal again. Amazon is doing all this without even needing a commercial banking license.
Money and paper receipts is also a major contributor to pollution and the death of nature. Switching to Amazon for my checking account would mean, I don’t have to rely on printed money or cards. I also hopefully won’t need to take receipts. It will automatically be made available as part of my account. Thus saving billions of gallons of water, oil, and trees.
The best part though for me as an impact-driven category designer, I know they will see a future and design it.
I will leave you with these words from Jeff Bezos in a shareholder letter — Jeff what does day 2 look like?
There are many ways to center a business. You can be competitor-focused, you can be product-focused, you can be technology-focused, you can be business model-focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.
Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples. — Source — https://www.geekwire.com/2017/full-text-annual-letter-amazon-ceo-jeff-bezos-explains-avoid-becoming-day-2-company/