by James Brumley | July 24, 2014 10:39 am
Big banks have suffered yet another blow in a war they’re gradually losing to online banking and bank-like services. Amazon Wallet — from Amazon (AMZN) — was quietly unveiled last week, giving consumers another choice for handling their money that isn’t a bank.
While the current “beta” version of Amazon Wallet isn’t packed with features and is therefore not a reason any investor needs to run out and immediately dump all their bank stocks, it’s still another piece of evidence that big banks are going to have to either adapt or die.
The thing is, big banks have been adapting, and not just because Amazon Wallet has been on the radar for a while. The question is, is this adaptation too little, and too late, for big banks and the corresponding bank stocks?
Some investors may already be familiar with Amazon Wallet, but for those who aren’t, it’s a little lackluster. As of right now, the mobile wallet app only stores gift card information and loyalty/membership card information. Though the app is eligible for use at about 70 eateries and retailers, it’s not exactly a threat to big banks.
Of course, the current version of Amazon Wallet is hardly the end product. Amazon has made it relatively clear for a while now that it’s aiming to become a lucrative hub for sending and receiving money. The latest step to that end (aside from the debut of Amazon Wallet) was last year’s launch of a service allowing Amazon customers to make payments to vendors with nothing more than an Amazon login and password.
It’s a territory that was previously dominated by banks and credit card companies, facilitating check and credit card payments. Amazon Wallet is hardly the only such service big banks and shareholders of bank stocks should keep a close eye on, however.
Google (GOOG) and Apple (AAPL) have both ventured into waters that would negate the need for a traditional bank. So have Walmart (WMT) and the still-struggling Isis effort. You could even put Green Dot (GDOT) into that group. And if you wanted to get technical about it, payday lenders such as First Cash Financial Services (FCFS) or EZCORP (EZPW) also allow consumers to manage their money without going through a bank.
Point being, Amazon Wallet isn’t an oddity; big banks are being threatened one way or another from all directions. That’s why they’re finally changing … or are they?
A piece penned by Michael Corkery and Jessica Silver-Greenberg and posted on The New York Times’ website on Wednesday morning painted a flattering picture of the nation’s big banks, pointing out how many of them were finally coming around to the idea that the nation’s underbanked and unbanked should at least have viable (and affordable) banking options. Bank of America (BAC), for instance, is piloting an account that simply doesn’t allow a customer to overdraft their account, although it charges $4.95 per month to maintain the account regardless of its balance.
Similarly, American Express (AXP) is the financial entity behind Bluebird — the alternative to traditional checking and debit cards that Wal-Mart has made the centerpiece of its growing banking-like, cash-handling money services. It’s a target market (the so-called “unbankable”) American Express wouldn’t have dreamed of targeting several years ago, but with growth opportunities on other fronts drying up, the credit services provider adapted to the opportunity it saw.
One can expect other big banks that haven’t followed suit to also realize the traditional, FDIC-insured banking industry as we know it is largely dead, thanks in no small part to technology and trust … trust that used to keep big banks in business, but has been redirected to many online options.
As the Corkery/Silver-Greenberg write-up pointed out, many of top managers at big banks were lauded by regulators at a hearing in April, simply because they were developing products to cater to those who may not otherwise qualify to become a customer of a traditional bank. Yet, it’s tough to imagine banks doing anything knowing there’s not a significant near-term or even long-term profit in it. More realistically, big banks are wading into what most would describe as non-traditional or even non-banking arenas because that’s where future profits lie.
The aforementioned Amazon Wallet is just one of many examples of how big banks are being circumvented altogether. It’s not just the unbanked or underbanked using such services any longer. In a 2012 study performed by ThinkFinance, it was uncovered that the use of prepaid debit cards was equitably distributed among people making as much as $75,000 per year. Preferences for bank-like servers were determined to be a question of age more so than income — younger customers just don’t care to deal with banks when the equivalent combination of services is available in much more convenient ways.
Again, this isn’t an argument that Amazon’s recent unveiling is a reason to shed bank stocks; some banks are clearly getting into the game. But direct deposits are now being made to prepaid cards, online lenders are able to grant a loan in a matter of minutes without even as much as a phone call, and many major vendors now accept a variety of non-check payments. So, no, Big banks aren’t offering low-cost, low-requirement services just to be nice and keep regulators off their back.
The nation’s biggest banking names are looking to remain relevant in the new era of digital consumerism. Unfortunately, the competition — Google, Apple, Bluebird, GreenDot, Amazon, PayPal, and even Isis — is miles ahead of them. It could be years before the traditional banking industry becomes the preferred choice for consumers in need of banking services.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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