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By Dave DeFazio
Remember what life was like before two-day shipping? I sure don’t. Like many of you, I am addicted to Amazon Prime, and I am going to bet that if you haven’t shopped on Amazon today, you’ve probably shopped on Amazon at least once this week.
Amazon Prime has evolved to be much more than just two-day shipping, and Amazon seems to keep adding more and more value to the service. Despite charging higher and higher membership fees, this approach has really worked for Amazon — the average Amazon customer spends around $600 per year, while the average Amazon Prime customer spends more than $1,400 per year. It seems that if Amazon is selling it, Amazon Prime customers like me are buying it.
“A person’s last experience is their new expectation.”
— Warren Tomlin
Amazon has clearly redefined online commerce. It may sound dramatic, but Amazon has completely ruined shopping for me. Any time I shop at another online retailer, I always end up comparing it to my experiences at Amazon. And that usually leads to disappointment. There’s really no comparison; many online merchants don’t offer free shipping, product reviews and shipping updates and so they end up losing my business to Amazon.
The quote from Warren Tomlin above always stops me in my tracks and makes me think about my own experiences as a shopper. That’s the Amazon Prime Effect, and its power extends beyond just online shopping. In other words, your bank’s mobile banking app is no longer just competing against other mobile banking apps, but also the best apps and experiences on the planet — even Amazon.
To stay competitive, bankers need to be more aware of these trends and the evolution of technology, convenience and consumer needs. How we shop and pay for things is changing in the mobile world. That will affect how we offer products and services to our customers and what they expect from their relationship with your bank in the future.
Amazon’s influence is stretching beyond the online shopping world, too. Amazon recently introduced a service called Amazon Go, which I believe will change the way we shop and pay for our purchases in stores. The Amazon Go store, in Seattle, offers the ingenious premise of “Just Walk Out Shopping.”
There are no cash registers or check-out lanes at the Amazon Go store. Instead, to shop, you have to download the Amazon Go app, connect your Amazon account and simply scan your phone as you walk in the store (on what looks like small metal detectors).
Inside, you’ll find a variety of convenience store items such as snacks, beer and wine, candy, coffee, non-perishables, etc. The big difference between this and your local convenience store is that nearly every inch of the ceiling is covered with cameras. Amazon Go stores use machine learning, facial recognition and sensor fusion from the time you enter the store, tracking each move you make while shopping. The technology detects when products are taken off the shelf and keeps track of your virtual cart. And, then, when you’re finished with your shopping, you “just walk out.”
A moment after you leave, you receive a notification on your phone with your receipt, showing the payment via the card on file with your Amazon account. Amazon even makes it easy to return or correct mistakes with one easy swipe.
If I could look into the future, my prediction is that this is where Amazon is heading with Whole Foods. In fact, in the Amazon Go store, you’ll already find cross-promotions featuring the Whole Foods brand. Amazon has announced plans to open 3,000 Amazon Go stores across the U.S. by 2021, and recently opened its second location in New York City.
THE NATURE OF CONVENIENCE: HOW WE SHOP AND PAY FOR THINGS IS CHANGING
If you haven’t done so already, I believe it’s imperative that every banker download the Starbucks app and make a purchase using your phone in a Starbucks store. I believe that Starbucks is the most important mobile payment company on the planet. It might surprise you to hear me use those words to describe a coffee company, but more than any other company, they are the experience standard for mobile payments.
Consider the stats. According to eMarketer, more than 25 million people will use the Starbucks app to make in-store purchases in 2019 — more than any of the other mobile players: Apple Pay, Google Pay or Samsung Pay. Mobile payments accounted for more than 30% of Starbucks transactions in 2017!
I never reach for my wallet anymore in the Starbucks store. Instead, to complete mobile payment transactions, customers must first “deposit” a few dollars to their Starbucks app, using their bank debit or credit card.
Amazingly, Starbucks is now holding more cash than some banks — more than $1 billion when it was last reported in their financial reports. This trend with stored-value apps is a growing threat to bank deposits as more and more retailers try to copy Starbucks’ successes. For example, Uber recently introduced Uber Cash, which has similar loyalty, reward and payment experiences.
For me as a consumer, the way I think about convenience is changing because of my mobile device, and Starbucks is the star example. I enjoy a coffee break in the afternoon of my workday, and, lucky for me, there’s a Starbucks store just around the corner. However, up until recently, I rarely made the short trip to the store because I didn’t have the time to stand in the long lines that seemed to be ever-present at this location.
But now, after the addition of order-ahead features in the Starbucks app, I can punch in an order as I walk out of my office, pay with my phone and skip the line as I arrive at the store to pick up my coffee. Starbucks reported that these order-ahead transactions now make up more than 13% of total transactions!
This presents a new kind of challenge for our industry. How will your bank maintain a “top-of-wallet” or “card-on-file” position for app-based payments? Not surprisingly, the big banks are already making their moves. Capital One ran campaigns offering to refund half of the monthly Spotify subscription if customers added their Capital One card as the payment source in the Spotify app.
Even small financial institutions are awakening to this opportunity. This summer, CBC Federal Credit Union ran “card-on-file campaigns” during the recent Amazon Prime shopping day.
PERSON-TO-PERSON PAYMENT PROVIDERS
Convenient and seamless Person-to-Person (P2P) apps like Venmo and Zelle are changing the way consumers exchange money with each other.
Venmo started the trend and is the experience standard for P2P payments, particularly with the millennial generation. If you haven’t tried Venmo, I challenge you to download it, set up your account and transfer money to a friend or family member.
Once you have experienced Venmo, go to your bank’s mobile app and complete a P2P transaction. Then, make an honest comparison. Which transaction was easier? Which service was easier for the recipient?
Very simply, banks that don’t have a Venmo-like P2P experience for their customers are now behind. The big banks have answered the challenge with Zelle. In 2018, Venmo’s payment volume was $64.2 billion and Zelle was nearly double that at $122 billion. Also, with the recent addition of services like debit cards, I believe Venmo (owned by PayPal) is positioning itself to be “the checking account of the future” for millennial customers.
FINANCIAL ADVICE — FINTECH APPS
People still want advice from banks, but they don’t always know how to ask for it. And now, non-traditional fintech apps such as Digit, Acorns and Credit Karma are re-imagining the way that financial advice is delivered in a mobile world. If you don’t have any of these apps, at least download Credit Karma and familiarize yourself with the way their app is helping consumers gain insights into their credit health via free credit scores, reports and other tools.
These aren’t cute little experiments either, as some apps are now reaching mainstream status and have developed huge user bases. Credit Karma alone has 85 million users, which includes nearly half of the millennials in the U.S.! Their massive user base and the trust they’ve built with them has now been leveraged for cross-selling. So far, they have referred more than $40 billion in loans to the big banks.
Don’t mistake my message as a press of the panic button, but rather a challenge to banks of all sizes to do a better job in the way we design mobile experiences and push advice to customers in this mobile world. We have to stay on top of the trends and research so the big banks and financial technology apps don’t continue to steal the cross-sells of our future.
For more insight on how banks should reinvent checking accounts, visit www.strategycorps.com/stuff and download the whitepaper.
Dave DeFazio is a partner at StrategyCorps. He designs top-performing checking, marketing and training solutions for banking clients. StrategyCorps’ BaZing mobile app enhances checking accounts with rewards like local discounts, cell phone protection, roadside assistance and other in-demand services that bring value to customers.