The online retailer is reportedly looking at entering the financial services fray, prompting thoughts about the future of banking.

US e-commerce titan Amazon is reportedly talking to Wall Street banks about creating an online checking account, joining the ranks of firms such as China’s Alibaba in pushing into financial services.

And reports that the online shopping portal - now dealing with certain behavior quirks of its Alexa “personal assistant” device – is looking at bank services highlights how the boundaries between tech and finance continue to blur. (Media reports this week said Amazon is dealing with complaints about the “laughter” of its Alexa device.)

The Wall Street Journal said Amazon.com is talking with large lenders including JP Morgan to offer a checking-account-like product that the retailer could offer to clients. The report quoted unnamed sources.

If such stories are correct, it could put Amazon on the same path as that taken by Alibaba, the Asian e-commerce firm founded by Jack Ma. Its Ant Financial affiliate business provides financial services to millons of citizens. Offerings include access to forms of wealth management. Rumors of tech giants moving into the financial services space have long been prevalent. A study last year, for example, said that bank executives fear the arrival of such tech firms into their space. It also adds to the idea that established banks, weighed by regulation and legacy issues, are potentially vulnerable to upstarts often having far larger market capitalization.

Chart of Amazon's market value (source: Macrotrends):

“Last year Amazon considered buying the US bank Capital One, so the idea of moving into banking is obviously very attractive to the e-commerce giant,” ParcelHero’s head of consumer research, David Jinks, said in an email.

“And many of its regular customers seem to agree: global research from Accenture reveals half of all Amazon users would consider a savings account with Amazon, and 45 per cent are open to the idea of it being their primary bank account,”  he said.

Already, Paypal, the payments service group, helps to power many transactions used by online retailers, so the move by Amazon may to some extent represent the next logical step. Also, with wealth management observers saying the sector should learn from Amazon, it may be ironically the case that the firm could push directly into banks’ terrain.

The WSJ report said Amazon’s move to develop such a service is at an early stage and may not lead anywhere. Also, the initiative will not mean Amazon becomes a bank – a situation that would put the US business under the thumb of a range of regulators and constraints.

If the product emerges, this will further expand Amazon’s involvement in the day-to-day commercial lives of the public, as seen by its recent acquisition of Whole Foods, its Amazon Prime channel and its Alexa digital assistant.

As the report says, the combined market value of Amazon – over $700 billion – puts it way above the combined market cap of Bank of America and JP Morgan, the two largest US banks.

Potential worries
While such a development might please people who want an alternative to existing checking account providers and add more competition, it might also raise hackles of lawmakers in Washington DC and possibly overseas who might argue that tech giants such as Amazon and Google have too much market share as it is. The firm has been rapped by "tax justice" campaigners over how it has in the past sought to avoid paying high US corporate taxes by parking foreign earnings abroad, although the situation has already changed following the Trump administration's cuts of late last December.

ParcelHero’s Jinks said momentum for such developments is increasing. “Amazon is already a fully-fledged money lender to retailers. It has made loans totalling well over $1.5 billion to merchants in the US, UK, Europe and Japan. And it also already has its own UK credit card: the Amazon Platinum Mastercard gives reward points whenever users shop on it. Behind the scenes it’s actually run by NewDay: but were Amazon to run its own banking services, access to full credit card information would give it even more vital data about its customers’ shopping behavior,” he said.

“I certainly wouldn’t bank on Amazon not having a significant online banking presence in the next five years,” Jinks added.

Other commentators agreed that Amazon’s move is viable. “As the Seattle-based retail behemoth continues to leverage its economics of scale, low costs and cutting-edge technology to steamroll its rivals, Amazon could easily rise as a leader in the financial sector to become on par with Wells Fargo Corp, the third-largest bank in the United States,” according to the Investopedia website.

It continued by noting that consultants Bain & Company released a note this week saying Amazon could take on America's most powerful corporations in as little as five years, thanks to its digital dominance and widespread consumer base.

The website quoted Bain's Gerard du Toit and Aaron Cheris as predicting that Amazon's banking service will boom to serve over 70 million US consumer relationships by 2023, posing a larger threat to the current industry order than "nimble fintech startups".