Jeff Bezos has a known appetite for killing entire industries and three weapons of mass commercial destruction on his side. Now he’s set his sights on financial services. Buckle your seat belts.
For years now, Wall Street has followed a pattern of doing Amazon’s work for it. But Wall Street’s own turn in the competitive crosshairs is coming fast as Jeff Bezos pivots his gigantic platform to capture a slice of global financial transactions.
After all, Amazon thrives on replacing inefficient and poorly differentiated intermediaries in order to address the end user directly. Every new need or want the company satisfies shifts the overall commercial center of gravity a little farther its way, incrementally starving everyone else.
It’s a basic scaling strategy, only one that theoretically expands in all directions sooner or later.
At least that’s the theory. Right now, it’s looking like the platform could reach in our direction on the soon side.
The question isn’t really around the timing, which is always “as fast as possible” where this company is concerned. The question is whether today’s bankers and advisors are going to sit still while a new kind of competitor eats their lunch.
The Amazon advantage boils down to reach, technology and ambition. With 100 million households finding good value in paying $119 a year for Prime membership, the company has a toehold just about everywhere financial professionals want to be.
Bezos has exploited that toehold to insert Amazon messaging into markets we wouldn’t have imagined 10 years ago. When you’re buying books from the company, the messaging encourages you to add music to the cart, then laundry soap, packaged food, boxed meals.
And if you weren’t enough with the company to justify a deeper Prime relationship, the original and on-demand video programming sweetens the deal.
Prime costs a lot less than conventional cable television. The value proposition costs out like Netflix with free shipping attached. Now that the price has gone up another $20 a year, there’s room in that package to offer even more services to maintain that value.
Consumer finance can easily go into that package. The margins per account may not be as attractive as they are at a standalone bank, but that’s built into the growth model — Bezos makes his money on the bundle, not the individual transaction.
If a service pushes a few more people into Prime or increases retention by even a fraction, it’s worth doing, provided it can be delivered at the right price. For a lot of mass-market services like electronic checking and bill payment, that cost can get down close to “free.”
All Bezos needs to do is build out the feature and push the button to promote it across the 100 million households already in his world. That’s where Alexa comes in.
Amazon loves to build technology that cross-sells across the platform. There’s nothing stopping Alexa from incorporating “friendly” financial recommendations into its suggestion algorithms.
That’s a lot of what flesh-and-blood advisors do. It’s not necessarily a disaster to have a box render you a little less relevant, but it’s a drag. Multiply that drag across 100 million households and you see the challenge.
Amazon could declare war on the industry at any time. Bezos just hasn’t demonstrated the ambition to do it yet. That gives everyone else time to get out of his way.
Adding value on the top
History is a story of commercial relationships that were once highly valued devolving into utilities when technological advances came along.
It once took a small army of highly trained professionals to execute a stock trade and record pricing throughout the market. They earned a good living. Now it happens behind the screen and the cost is measured in basis points.
Twenty years ago there were standalone companies that did nothing but offer email access. Those companies are gone.
Amazon focuses on that process, automating competitors out of businesses where there’s too much redundant capacity or margins are unusually high.
Right now that’s the traditional financial services industry. There’s a lot of people chasing a limited number of accounts, using marketing strategies that really aren’t all that differentiated.
It’s a good business when it works, which makes it attractive to the Bezos machine. But as long as people position themselves more or less like machines, Amazon’s work gets easier.
We’ve been talking for years now about robot advisors, what they do and what they don’t. For investors who don’t have a lot of assets to merit or reward personalized service, automation is probably the best game in town.
Those investors weren’t really the holy grail for most flesh-and-blood advisors anyway. The conversation around that market segment was always how wonderful it would be if someone found a way to serve it profitably.
That’s what the robots do. They offer these people who traditional advisors weren’t really working with value they can understand at a price they can afford — and at a cost that theoretically scales up to profit.
And that’s the market Bezos would inhabit. He isn’t interested in immediately disrupting high-value relationships that pay out at a 1% asset management fee. He really wants to disrupt the robots and that’s going to keep him busy for years to come.
After that point, we’ll see where we are. Advisors who want a taste of that market can always partner with Amazon, get their share of the Alexa universe. Big technology providers like Envestnet are working to help that happen even as we speak.
Bezos loves to coopt where he can’t immediately conquer. Cooperation can make ambitious people a lot of money in the here and now, effectively using the Amazon machine for their own benefit.
You’re not Barnes & Noble. You’re a human being, one of those independent agents who survive Amazon disruption in industry after industry.
And sometimes Amazon doesn’t win right away. Years from now, when the company is actually a player in consumer payments and other utility businesses, the big banks will feel the drag. Where will we be? Probably in the best spaces for human beings: talking to other people, moving money between robot platforms.