Two-thirds of Prime customers say they would bank with Amazon

24 September 2018 Consulting.us

A new survey from management consultancy Bain & Company finds that about two-thirds of Amazon Prime subscribers would try a free banking account provided by the ecommerce retailer. The study also found higher levels of consumer loyalty for Amazon than towards regional and national banks.

Back in March, there were rumblings that Amazon was looking to team up with a partner like JP Morgan Chase or Capital One to create a simple digital checking account to, in part, avoid credit card transaction fees on purchases. At the time, Bain & Company surmised that the ecommerce giant – with its strong brand recognition and long-standing digital relationships – could become America’s third largest bank, with 70 million customers, by 2023. 

Indeed, Amazon has a lot going for it as a potential digital bank. It has high marks for customer service and experience, a full commercial relationship with customers, no major security breaches thus far, 90%-plus renewal rates on its paid membership program to which a majority of US household subscribe, and the potential for a light physical-branch footprint at its Whole Foods network.

Another big advantage for Amazon is a high level of consumer trust, a factor that is especially important in financial relationships. Consumers are presumably more likely to switch to a financial institution that they trust with their information and money. And while they don’t necessarily have to worry about having to make a run on the bank for fear of it becoming insolvent like in the film ‘It’s a Wonderful Life,’ they still want to generally be assured their money is in ‘safe’ hands. According to an earlier Bain survey, Amazon achieved nearly the trust levels of banks in general.Amazon has earned greater loyalty than traditional banks, though it trails USAANow, Amazon can count on another advantage in its banking bid: strong customer loyalty. According to a Bain survey of 6,000 US consumers, Amazon has much higher customer loyalty scores than US banks. Consumers gave Amazon an average Net Promoter Score of 47 – significantly higher than regional banks (31) or national banks (18). The NPS is based on how likely it is for a customer to recommend a company to a friend or relative.

Bain’s report states that Amazon’s strong showing in customer loyalty stems from its two-decade focus on improving customer experience. The ecommerce giant is regularly ranked first in customer satisfaction among retailers.

Meanwhile, the United Services Automobile Association – which offers insurance and financial services to former and current military service member and their families – remains the high-water mark for customer loyalty. However, the organization is an exclusive one that serves a unique customer base.

The core finding of Bain’s study, however, is that 65% of Prime subscribers say they would try a free online bank account offered by Amazon with 2% cash back on Amazon purchases – a similar offer to its cobranded credit cards. Though the tech firm is cagey about its subscription numbers, a rough estimate of the US Prime subscriber base is 66 million – which means about 43 million people would be willing to try the banking service.Amazon Prime subscribers are much more likely to open a banking account with AmazonOf the Amazon customers who aren’t Prime members, 43% would try the account, while 37% of those who don’t use Amazon would try it. Taken together, Amazon can bank on significant initial demand for its simple banking services.

Bain figures that Amazon can use its initial checking account to be platform for a wider range of lucrative services like insurance and loans. Alibaba has already proven that a technology firm can succeed in financial services through its Ant Financial unit, which reported $95 billion in outstanding loans earlier this year.

Amazon’s reach already extends to America’s most valuable banking customers. Bain’s survey found that Amazon’s customers control about 75% of US household wealth, while Prime members control about 45% of household wealth.

Furthermore, Amazon can count on its mutually reinforcing consumer ecosystem. Once you buy into one part, like Amazon Prime, it’s likely you get enticed into other Amazon products like the Kindle or Alexa-powered Echo speaker. About half of Prime subscribers use a Kindle or Fire TV, while a third use Amazon payment methods like a cobranded credit card or Amazon cash.

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Payments market projected to see 6.6% annual growth to 2027

17 April 2019 Consulting.us

Bank payment systems are big revenue generators for incumbent banks, and growth in the segment is projected to continue at a rapid 6.6% annual increase, from $1.3 trillion in 2018 to $2.4 trillion in 2027. Developing markets are set to see the fastest growth, increasing their total share from 52% to 61% in the same period.

The payments segment is set to see strong growth in the coming decades, particularly in developing countries. The long-time control of banking incumbents over the segment, however, faces various threats from the rise of fintechs leveraging a range of technological innovations.

To understand the changing market conditions, as well as the possible impact of new entrants, Boston Consulting Group (BCG) has released its “Global Payments 2018” report.Payments revenue is expected to grow by 1.1 trillion to 2027Payment revenue has seen a number of years of solid growth, particularly in line with developing global economies. Compound annual growth rate (CAGR) globally stood at 6.8% between 2010 and 2017, increasing from $805 billion to $1.27 trillion. Mature markets have been relatively stable, with growth of around $100 billion noted during the period, resulting in around $616 billion in revenue in 2017. Developing economies, meanwhile, saw total revenue more than double, from $268 billion to $657 billion.

While the disparity in growth between developing and mature economies is currently stark, the firm’s projections for the future will see developing markets up their growth while mature market growth slows, at 8.3% and 4.4% CAGR, respectively, between 2018 and 2027. Developing market revenue shares are overall set to continue to eat into mature market shares. The shift will see the 2027 mature market represent 39% of total revenues, compared to a 48% share 2018.Primary income set to close gap on secondary income in mature marketsThe study also examined the difference between primary and secondary revenue sources, and their respective growth rates. Primary sources represent transaction fees that come with making payments, while secondary sources represent account fee costs and related non-transaction costs. The study revealed a shift toward increased income from primary sources in mature markets, with the share between primary and secondary sources shifting from 43% and 57% in 2017, to 57% and 43% by 2027. In developing markets, however, secondary sources are and will continue to be the main source of revenue growth, at 27% (primary) and 73% (secondary) by 2027, with only a 4% increase in income from primary sources over the same period.Retail payments revenue is expected to growRetail growth is projected to represent the more lucrative growth market for payment revenues, with 7% growth between 2017 and 2027. Credit card revenue will see the strongest relative growth, up almost $462 billion, followed by account revenue and debit card revenue. The retail market, meanwhile, is set to top $1.85 trillion by 2027, with the wholesale market set to see growth of around 6%. Account revenue will see the strongest absolute growth, while credit card and debit card revenue growth is set to outpace the market as a whole, with around 7% growth during the period.

The firm notes, however, that customer sentiment is changing. Fintechs are sometimes able to provide more efficient and better tailored services – with uncertain outcomes for some incumbents. “In both the retail and wholesale payments business, customers are becoming impatient with clumsy interactions and inefficiencies,” Mohammed Badi, leader of the firm’s global payments and transaction banking segment, and the report's coauthor, said. “Consumers, treasurers, and merchants are looking for automated, integrated buying journeys and tailored service. They are being conditioned by their buying experiences in other industries. Banks, in order to stay relevant, must respond faster and more strategically to the altered payments environment by focusing on the pain points that matter most across the overall customer journey.”