Amazon could shake the banking industry to its core - but one expert says Wall Street can fight back

Richard Brian/Reuters

• Amazon's reported foray into the checking account business is a scary proposition for the banking industry, given the company's reputation for disruption.
• A partner at Bain & Co. argues banks can withstand pressure from Amazon if they focus on one key area.

When the news hit that Amazon was in talks with several banks to launch a "checking account-like product," naturally everyone feared the worst.

After all, this is a company that's taken multi-billion-dollar bites out of at least five major industries in the past year, often with only minor announcements. Armed with a war chest of cash and an ever-expanding network of customers, Amazon isn't afraid to throw its weight around.

But the situation for banks may not be as dire as some seem to think - at least yet.

That's according to Maureen Burns, a Boston-based partner at consulting firm Bain & Co. and a co-author of a recent report analyzing Amazon's foray into financial services. She argues banks already have some inherent advantages, and could withstand pressure from Amazon if they focus on customer service.

"Banks are in a position where they can catch up, and do it quickly," Burns told Business Insider by phone. "They need to identify where their customer experience lags, and find the right partners to get the experience to the level of a big tech provider."

In particular, there seems to be some catching up to do when it comes to digital channels. In the Bain & Co. report, the firm found that only around half of US survey respondents strongly agreed that their primary bank's website lets them do everything they need. That percentage fell to 31% for primary bank apps. In contrast, US millennials list Amazon as the app they can't live without.

But for now, banks still have a leg up when it comes to their massive balance sheets, which offer the type of liquidity necessary to run a checking account operation, says Burns. She also notes that whatever banking business Amazon does launch will need the regulatory clearance and backing that big banks currently have.

With those two elements already working in their favor, Burns says it's up to banks to improve their outward-facing interactions with clients. In the end, her point is that while Amazon needs to rely on the cooperation of large financial institutions, all banks have to do is focus on themselves.

"It's not simple to change a banking relationship, so customers do it when they get really frustrated, or can't do what they want to do," said Burns. "Banks need to get ahead of that."

Easier said than done? Perhaps. But no one ever said fighting off Amazon would be easy.

Navigating the 'trust gap'

The topic of trust and how it impacts consumer behavior is something Burns touched upon frequently, while Bain's recent study also discusses it in detail. And based on their findings, it's a factor that could very well decide how things unfold as Amazon pushes into banking.

To hear Bain tell it, the company is off to a great start, with a trust ranking that puts its mega-cap technology peers to shame. This can be seen in the chart below, which shows consumers are far more likely to trust Amazon with their money than the likes of Apple, Google, Microsoft, or Facebook.

Bain & Co.

You'll notice, however, the massive chasm that still exists between Amazon and primary banks. It suggests Amazon still has a ways to go - although Burns notes the difference used to be far more pronounced.

"The trust gap between banks and tech players wasn't as big as we would've thought, and it's getting smaller," said Burns. "But client trust, and convincing people to put money with them, is still an enormous barrier."

With that in mind, if big banks are truly going to withstand Amazon's last industry-disrupting push, they'll also have to combat chief executive officer Jeff Bezos' famous mantra: "Your margin is my opportunity."

And that may be the toughest task of all - since they're nowhere near as diversified as Amazon, which makes them ill-equipped to deal with a margin squeeze.

"[Amazon's] model is about getting into a bunch of things, innovating, being willing to experiment, being willing to take risks, being willing to lose money - and then finding the really profitable places where they can play," said Burns. "Banks absolutely need to be thinking about this. Amazon looks to be in it for the long game."