Amazon is reportedly weighing entering the banking sector, and if the sprawling e-commerce giant decides to do so, it could be detrimental to other big banks, according to a report released by Bain & Company.
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If it began offering banking services, Jeff Bezos’ empire could service more than 70 million U.S. consumers within the next five years, becoming the third-biggest bank in the country, according to Bain, a global management consulting firm. Already, Amazon is in talks with financial institutions, including JPMorgan Chase.
“Amazon stands a very good chance of succeeding in banking by disrupting the industry as it has in retailing,” the report said. “Customers indicate ample willingness to buy financial products from technology firms, and Amazon has earned their trust more than most other tech firms.”
Technically, Amazon would not legally become a bank, instead partnering with a bank that would hold its deposits while designing and managing the customer experience and distribution. By doing so, the Cupertino, California-based company could avoid dealing with bank regulatory compliance.
But, David Dietz, the president and chief investment strategist at Point View Wealth Management, warned Amazon needs to be careful about entering the banking sector, which has proven detrimental to other large conglomerates.
“They also have to be careful what they wish for,” he said. “GE Finance was in banking, Wells Fargo had some troubles here. It’s not an easy business.”
Since Bezos founded the company in 1994, Amazon has continued to expand its reach far beyond online retail. In June, the company announced it would acquire Whole Foods for $13.7 billion. And in early February, Bezos teamed up with Jamie Dimon of JPMorgan and Warren Buffett of Berkshire Hathaway to announce a venture to reduce health care costs for employees. Bezos also owns The Washington Post.
Some investors are leery that the company is expanding too widely and too quickly. “We own the stock and we own it for the retail side, not the banking stuff they’re hoping to do,” Kingsview Asset Management chief investment officer Scott Martin said. “[They need to] stick with their knitting.”