What if Amazon Launched A Bank?

“In a surprise move, Amazon today launched its first smart bank location, equipped with interactive touch screens, face-to-face phone banking and video conferencing facilities. In addition, the bank will have other facilities, including a state of the art voice-activated deposit system with Amazon Fire tablets to process account openings.

As you might expect, there is a strong customer focus. Amazon is offering all new customers free subscription to its “Prime” Service, a 0% credit card and £150 in Amazon store credit. Interactive touch screen panels line the interior and exterior of the building, giving 24 hour access to Amazon products, services and the latest weather information…”

Of course, Amazon hasn’t launched a bank – we made that bit up.

We hope it brings home the point that Amazon launching a bank – with its innovative capacity and lightning fast updates – should send a shiver down the spine of every retail banking CIO.

How would banks built on legacy and difficult to change IT systems compete?

An Amazon Bank Would Be A Runaway Success

Amazon posted revenues of $74bn in 2014, enough to make it one of the largest financial services companies in the world by revenue, without the pressure of raising money on the open market.

AWS adds enough server capacity every day to support all of Amazon’s infrastructure back when it was merely a $7bn company in 2004. AWS accounts for $3bn of its income today, and would leave Amazon in the invidious position of it being funded by its direct banking competitors.

From a customer perspective, being a retail banking customer would almost certainly entitle someone to a free subscription to Amazon Prime.

With the way the Fire Phone’s have been selling, perhaps even a free smartphone to boot. Do you really think Amazon would take three to five days to clear a payment?

How Long Can CIOs Fudge The Issue?

Thus far, CIOs have chosen to muddle through and fudge the question of replacing their core banking system.

Soon however, the choice may be taken out of their hands. Tencent and Alibaba will soon be launching a retail bank that will analyse huge amounts of user information to evaluate the credit risk of small borrowers.

German social media bank Fidor Bank is close to a launch in the UK, and uses the Ripple payment protocol to allow customers to send money in any currency.

CIOs have thus far chosen to muddle through with legacy IT systems, batch payments and Sunday closing – helped in part by the alternative not being compelling enough. But for how much longer?

When faced with real choice in the market however from innovative players held back by legacy technology, many customers may simply choose to churn. And it’s not at all clear how retail banking would cope with that.

No Longer A Case Of Rip And Replace

Increasingly, there are alternatives available to CIOs which do not involve ripping out the core banking system – at least not in one go.

The last five years have seen an explosion of options for componentization, API calls and cloud technologies that provide an alternative to going head to head with Amazon EC2.

This gives the CIO more options. As Peter Sondegaard of Gartner points out, more large enterprises are now adopting a ‘bimodal strategy’ to manage the tension between what IT needs to provide and what the business needs to grow:

Mode one is all-things traditional, emphasizing safety and accuracy — what a traditional IT organization does best. Mode two is nonsequential, emphasizing agility and speed, like a digital startup. Put them together and what you have is bimodal IT. One organization operating at two speeds, but coordinating, communicating, leveraging shared knowledge and focused on one shared, not competing, goal; improving performance.

A bimodal strategy should be looked on as an asset, because fundamentally it’s about delivering predictable, reliable and safe services alongside the services that a business needs to grow. A recent Gartner survey revealed that “45% of CIOs state that they currently have a second fast mode of operation and, by 2017 we predict that 75 percent of IT organizations will have a bimodal capability.”

Towards Organic IT

Our hypothetical Amazon Bank, and apps such as British Airways, Spotify, Soundcloud and Netflix are part of a new wave of what we call super applications. These feature next generation design patterns such as microservices, learn from the user, and pass on genuinely valuable and enriching content. These apps go beyond mere database calls to deliver real utility and value.

Having a cool and groundbreaking application will be increasingly dependent on decentralizing IT. With their core business application being delivered alongside newer technology, businesses will be able to outsource some parts and focus on strategic items inhouse. Freed from the need to constantly maintain the business, CIOs will have a wider lens, and the ability to develop, produce and implement new go-to-market models.

Businesses have all the incentives they need to invest and produce an infrastructure capable of providing next generation experiences. The container and microservice revolution will go some way towards helping enterprises deliver the services a business needs alongside the applications it trusts.

What do you think would happen if Amazon launched a bank?

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