Amazon’s new checking account program is 'less about disrupting' and 'more about increasing engagement' (AMZN)

pulse

March 6, 2018 1:42 PM

The e-commerce giant plans to launch a checking account-like product, the WSJ reported Monday.

Bank of America analysts say the move is more about increasing customer engagement than disrupting the financials sector.
The analysts say the service probably won't have a big impact on Amazon's bottom line.

While Amazon has plenty of power to disrupt any given sector — just look at what it’s done to groceries in less than 12 months — the e-commerce giant’s new plan to offer checking account services is about keeping customers engaged, according to Bank of America.

"We think AMZN’s aim with expanding its financial offering is less about disrupting the financials sector and more about increasing engagement on its own marketplace," analyst Justin Post said in a note to clients Monday.

For examples of how the program might be used strategically, Bank of America looks to both Amazon’s Prime program and its Chase partnership to provide loans to third-party sellers.

"In June 2017, AMZN started an initiative (Prime Discount) to better penetrate lower income demographics, specifically shoppers who are receiving some form of government assistance," the analysts wrote. "In our most recent eCommerce survey (Dec. ‘17), Prime penetration for users who reported annual household income of <$50,000 increased to 56% from 51% in 2Q17."

They continued, "Like Prime, AMZN may want to offer checking incentives to drive customer lock in and higher long-term retail sales" says the bank.

The analysts say the service probably won't have a big impact on Amazon's bottom line.

Bank of America has a price target of $1,650 for Amazon — 7% above the current share price of $1,532.

Amazon is up 29% since the beginning of 2018.