Amazon And The Future Of FinTech

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The Amazon/Whole Foods transaction is setting off a lot of discussion about the future of retail shopping.

So, why shouldn't this also set off a lot of talking about the future of banking, not only retail banking, but all kinds of financial services?

And as some have suggested, this kind of thinking might cause banking, as we know it, to not be just automated, but be made irrelevant.

"Imagine this scene from the future: You walk into a store and are greeted by name, by a computer with facial recognition that directs you to the items you need. You peruse a small area-no chance of getting lost or wasting time searching for things-because the store stocks only sample items. You wave your phone in front of anything you want to buy, then walk out. In the back, robots retrieve your items from a warehouse and deliver them to your home via driverless car or drone."

Claire Cain Miller presents this picture of the future of retail shopping in the New York Times.

She is just extrapolating from the fact that: "Amazon has already made shopping for almost everything involve spending less time waiting, doing work or interacting with people, and now it could do the same for groceries."

She adds "It's already trying with a store in Seattle, Amazon Go, that has no salespeople or checkout times."

Can you imagine people that are accustomed to this kind of retail shopping are going to be comfortable with commercial banking, with financial institutions, as we know them now?

Amazon already has something called Amazon Pay, something that, according to its website, "makes it simple for hundreds of millions of customers around the globe to check-in and check out using information already stored in their Amazon account. The customer experience is familiar and trusted."

Furthermore, Amazon has already been in serious discussions with PayPal. "Amazon (NASDAQ: AMZN) and PayPal (NASDAQ: PYPL) have been in discussions about the possibility of the online retail giant supporting PayPal payments at checkout…" writes Dan Reisinger in Fortune magazine.

Something is happening in FinTech and it's coming from the Big Tech firms.

Apple (NASDAQ: AAPL) also has Apple Pay, which, according to its website, "is simple to use and works with the devices you use every day. Easily pay with your debit cards and credit cards with just a touch. And because your card details are never shared by Apple when you use Apple Pay, making payments with your iPhone, Apple Watch, iPad, and Mac is the safer, more private way to pay."

Here the essence of the banking system is not holding money for customers, but transferring funds from one place to another place. That is, the banking system of the future will work through the payments system.

And, this payments system will not necessarily be tied into where you hold your assets, just how your assets might be connected to the payments system.

Do the banks know this?

I don't really believe that they do. I mentioned this point in a recent post on the Amazon/Whole Foods transaction, expressing my feeling that big tech companies like Amazon are looking at the world in a way that is entirely different from the way that the leaders of the financial services industry are looking at the world.

In addition, I have written a post in which I emphasize the point that "Financial Are Way Behind in FinTech."

Ms. Miller, in the New York Times article, quotes Erik Brynholfsson, director of the MIT Initiative on the Digital Economy, on what is taking place:

"The bigger and more profound way that technology affects jobs is by completely re-inventing the business model. Amazon didn't go put a robot into the bookstores and help you check out books faster. It completely reinvented bookstores. The idea of a cashier won't be so much automated as just made irrelevant-you'll just tell your Echo what you need, or perhaps it will anticipate what you need, and stuff will get delivered to you."

Can we extrapolate this to argue that people, and businesses, will also be able to conduct their financial affairs in a world that has a totally re-invented business model?

This is what I believe Amazon Pay, PayPal, and Apple Pay are starting to do.

And, as far as lending, well, we have numerous possibilities to source loans on the Internet already. How these will be tied together in the "re-invented business model" is being worked out as we speak.

What about asset holding and investing? No problem. There are financial institutions that, right now, allow a person to do everything they might like to do, online, including writing checks, buying stocks, purchasing options, and so on and so forth. It is not fully into the payments system right now.

So what does the Amazon/Whole Foods transaction add to the picture?

As Farhad Manjoo writes in the New York Times, Jeff Bezos, Amazon's founder and chief executive, "doesn't spend a lot of time predicting future possibilities. He is instead consumed with improving the present reality on the ground, especially as seen through a customer's eyes." The other thing to know about Mr. Bezos is that he is a "committed experimentalist."

The experimenting of Mr. Bezos is bringing him over the edge into the realm of the banking industry. The payments system is crucial. There is no telling how his experimentation might change the whole banking industry.

And, Mr. Bezos is not the only one among the high-tech companies that have this kind of attitude. There will be many more high-tech intrusions into the banking space and this, perhaps more than through the banks themselves, will become the re-invented business model.

To paraphrase Mr. Brynjolfsson of MIT, "The idea of banking as we know it won't be so much automated as just made irrelevant…."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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