6 Lessons Amazon Has Taught The Financial Services
Sabrina McClune
As a digital-first, multinational technology company, worth $1.65 trillion, Amazon gives other organisations a level of technological scalability to aspire to. With digital transformation steadily breaking down the boundary between finance and the tech world, Amazon’s success can teach financial services firms six essential lessons for digital growth.
1. Data For Every Decision
Amazon spends a considerable amount of resources on collecting and analysing data, making sure that strategies and decisions are based on relevant customer information.
This is evident in several ways, including product recommendations, supply chain and price optimisation, and purchase and return request screening.
Financial organisations naturally have access to significant data pools. However, it's crucial to balance data collection with responsible data practices and ensure user privacy is protected according to regulations.
Although data protection is also key, financial services companies can leverage this information to continuously improve customer experience, such as personalisation and detecting and preventing fraud.
Leaders believe data-driven decisions will give their firms the edge, with 60% of financial institutions investing in big data and analytics for a competitive advantage.
Using data for decision making, as Amazon does, requires not only top-level changes but also building systems to leverage data in everyday operations.
"Being a data-driven organisation means culturally treating data as a strategic asset and then building capabilities to put that asset to use not just for big decisions but also for everyday action on the frontline.”
2. Customer-Centric Personalisation
Data analysis unlocks vital opportunities for personalised products and services. By recognising buying behaviour, Amazon adapts product recommendations to appear in the right place, at the right time.
They call this algorithm ‘item-based collaborative filtering’. It is particularly noticeable on their homepage, which is tailored to each customer based on category interests and purchasing history.
This level of personalisation is extremely effective for Amazon, with an estimated 35% of their revenue derived from customers purchasing recommended products.
91% of consumers are more likely to shop with brands that provide recommendations, with 80% being more likely to purchase a product from a brand with personalised experiences.
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Amendment For Clarity (March 2024) It's important to note that personalisation can also raise privacy concerns or create filter bubbles where users only see information that confirms their existing biases. |
In financial services, studies reveal that personalised recommendations positively impact firm revenues.
Promoting digital pathways that appeal to customers’ current concerns, such as home loans for property searchers, is just the start of the personalisation of financial services.
With the data financial services firms have access to, they will increasingly be able to predict these concerns before they happen.
Although personalisation can boost revenue, at its heart is the customer.
“The science question we are looking at is ‘How do we optimise decisions to improve our customers' experience over a long range of time?'”
3. Don’t Be Afraid To Pivot
Change is a natural aspect of every business’s journey. Amazon started as an online bookstore in 1994. However, with the creation of eBooks, they realised that their business proposition was threatened by the emerging technology.
They decided to invest in eBooks themselves, dominating the market rather than allowing a competitor to do so. In the words of Brad Stone, author of *Jeff Bezos and the Age of Amazon*, “It is far better to cannibalise yourself than have someone else do it.”
This move future-proofed the business, with Amazon now owning 67% of the eBook market and having expanded far beyond books.
Amazon is now an eCommerce store for everything from technology to clothing to groceries. This leap from its humble beginnings was possible because of a sharp pivot away from its initial model.
With digital transformation a priority for businesses globally, financial organisations are facing mass disruption to keep up with the pace of change. This includes upgrading legacy systems, digitising processes, and investing in AI and blockchain.
Although change is necessary, it’s important to make sure that change builds differentiation into your organisation where it matters, rather than simply chasing “the shiny and new”.
Organisations that pivot in the right direction and differentiate themselves will, following Amazon’s example, see the sharpest growth. Balance is key:
"If you're not stubborn, you'll give up on experiments too soon. And if you're not flexible, you'll pound your head against the wall, and you won't see a different solution to a problem you're trying to solve.”
For help with balancing the demands of a digital transformation in your company, download our guide to creating change in financial services without rocking the boat.
4. Engage On Multiple Channels
Amazon offers an omni-channel experience, allowing customers to access their services via a web browser, smartphone app, 589 physical stores worldwide, and a smart assistant, Alexa.
The latter has been a game-changer for Amazon, with Bezos reporting the devices were crucial to its 2019 annual revenue jump of 20%.
A multi-channel experience has made Amazon renowned for customer service and speedy communication. The financial services industry still has a long way to go to achieve the ‘Amazon experience’.
Although digital services such as apps and portals are becoming more common, especially in banking, the 360-degree experience customers enjoy with Amazon is still lacking in touchpoints, largely due to regulatory or security constraints.
As compliant solutions to provide multi-channel access for financial services emerge, one potential channel banks are exploring is voice.
‘Voice banking’ will see virtual assistants like Siri and Alexa carrying out financial activities such as logging in, activating cards, making transfers, and paying bills.
According to a recent survey, voice banking is a desirable channel for customers, with 44% expressing interest in using voice assistants for everyday banking activities.
“Consumers are demanding personalised, real-time engagement, and are becoming more conscious about the time spent interacting with companies and the ease to solve issues through different channels.”
5. Stay Ahead Of The Curve
Jeff Bezos wrote in one of his annual letters: ‘Most big technology companies are competitor-focused. They see what others are doing and then work to fast follow.’
This is not the case for Amazon, which always aims to be one step ahead of the competition through its ideas and innovations.
An example that has set a new standard is Amazon Prime, the next-day delivery service available to customers on a subscription basis, setting the bar for quick and convenient delivery for all of retail.
Innovation will be a crucial competitive differentiator for financial organisations in the future. As technologies and the skills to use them become more accessible and standardised, progress will largely move towards homogenisation.
The competitive advantage for organisations that win big will come from utilising technologies to create systems that demonstrate innovation – providing customers with the new and unique.
There are many technologies yet to be fully utilised in financial services that could offer true innovation. One such technology Amazon is exploring is Biometrics.
The use of biometric identifiers for transactions and account access could increase security and prevent fraud, though there are logistical challenges yet to be solved.
Staying ahead of the competition won’t just require technologies but the right people to solve these problems.
However, security challenges like the potential misuse of biometric data also need to be considered.
"We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock options rather than cash. We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.''
6. Pair Efficiency With Security
To manage the large volumes of rapid transactions and deliveries they are known for, Amazon has had to become increasingly efficient.
Their digital services are streamlined, with one-click payments available to customers, and their physical operations are optimised, for example, through the use of robotics in their warehouses.
Automation is also utilised in their Amazon Go stores, eliminating the need for human staff to assist with purchase support, freeing them up for more complex customer service activities.
With such a significant focus on digital, Amazon ensures that data remains secure, with various measures in place to protect customer information.
This includes two-factor authentication (2FA) when logging into the Amazon portal, alongside customer training for identifying potential phishing emails or fraudulent activity. Amazon is also securing the cloud ecosystem with security solutions deployed for AWS users.
It's important to remember that cloud security is a shared responsibility between the provider and the customer. Organisations must implement strong security practices to complement cloud-based solutions.
As financial services step more firmly into the digital realm, their automation and cybersecurity practices are set for a significant overhaul.
80% of FS firms reported an increase in cyberattacks due to COVID-19, and 37.9% of surveyed individuals reported only sporadic availability of 2FA and other security elements to protect accounts.
Given the vast amount of customer data banks and other financial organisations hold, it is clear that more investment in cybersecurity software and processes is needed to make customers feel safe.
“My working assumption a year ago was that the cloud wasn’t as secure as a brick data centre. Now, I’m convinced it’s more secure and there’s less risk. We definitely get that from AWS.”
Key: Build And Support Sustainable Practices
With COP26 rallying the world to reach the 2050 Net Zero target, businesses are increasingly focusing on using and investing in climate technology (ClimaTech).
Six out of ten technology start-ups in the UK are currently focused on creating green tech.
Amazon has already made significant progress toward its sustainability goals, including:
- Reducing packaging: Amazon has eliminated more than 1 million tons of packaging material since 2015, roughly equating to 2 billion boxes.
- Creating the Climate Pledge Fund in 2020: Amazon has contributed over $2 billion in funding towards the development of sustainable technologies and services.
- Setting the goal of powering their operations with 100% renewable energy to reach company-wide Net-Zero by 2040.
Financial services sustainability efforts have some way to go. Research shows that more than $3.8 trillion in finance has been delivered to coal, oil, and gas firms since the initial Paris Agreement in 2015.
There are positive developments too, with some financial institutions actively supporting sustainable initiatives.
However, the financial services industry still has 70% of their processes reliant on paper, with an estimated 507 million documents sent to customers each year – equivalent to the deforestation of around 50,000 trees.
To counteract this, banks and other financial organisations can use ClimaTech to digitise processes. The potential results of simply shifting paper statements to digital are:
- Reduction of greenhouse gas by 37,000 metric tons
- Water consumption decreased by 136 million gallons.
- Annual industry savings of £1.3bn.
“The COVID-19 pandemic took millions of lives and dramatically impacted our families, our customers, our employees, and our global value chain. But it has also brought about a moment of pause and an opportunity to reconsider the resiliency of both humankind and our planet, making it clear how interconnected and interdependent we all are. By keeping the past year’s learnings in mind, we can successfully address societal shifts, avoid the worst impacts of climate change, and meet the Sustainable Development Goals."
— Kara Hurst, Vice President of Worldwide Sustainability, Amazon
Insurance provider Aegon saved an estimated 270 tonnes of carbon by switching from postal communications to secure email delivery.
A Roadmap For Success
Amazon's success story offers a roadmap for financial services firms navigating the digital age.
By prioritising data-driven decision making, personalised customer experiences, and the agility to pivot, financial institutions can position themselves for sustainable growth.
Embracing multi-channel access and staying ahead of the curve through innovation are crucial for exceeding customer expectations in an ever-evolving landscape.
However, achieving digital transformation requires balancing efficiency with robust security measures.
Financial institutions hold a significant amount of customer data, and robust cybersecurity practices are essential for building trust.
Furthermore, incorporating sustainable practices demonstrates your commitment to environmental responsibility, a growing concern for both businesses and consumers.
References:
Jeff Bezos Shared A 22-Year-Old Article Predicting Amazon's Failure, CNBC, 2021
How Amazon Uses Big Data, Analytics Steps, 2023
Big Data In Finance, Talend, 2023
How Big Data Has Revolutionised The Finance Industry, Techerati, 2022
How Do You Become A Data-Driven Organization?, AWS, 2023
3 Ways Amazon Uses AI To Make Product Recommendations, Lineate, 2023
How Retailers Can Keep Up With Consumers, McKinsey, 2023
91% Of Consumers Are More Likely To Shop With Brands Who Provide Recommendations, Wunderkind, 2022
The Rise Of Voice Banking, SDK.finance, 2023
Jeff Bezos’ Letters: Better Than Warren Buffett’s, Old School Value, 2023
Amazon Prime, Amazon UK, 2023
The Impact Of Biometrics In Post-Pandemic Financial Services, Imageware, 2022
These Are 4 Lethal Weapons Jeff Bezos Uses To Beat Competition, Inc., 2022
Amazon’s 1-Click Goes Off Patent, Wharton, 2022
The 2020 Cybersecurity Stats You Need To Know, Fintech News, 2020
Individuals Use Two-Factor Authentication, Biometrics To Protect Information, Security Magazine, 2021
UK Financial Services Failing To Go Paperless, Accountancy Daily, 2023
AWS Compliance Testimonials, AWS, 2023
Banks Slow As A Paper-Based Process, Tearsheet, 2022
Amazon Sustainability, Amazon, 2023
Big Banks' Trillion Dollar Finance For Fossil Fuels, The Guardian, 2021
Study: UK Leads Europe In Climate Tech Investment, Business Green, 2021
Reviewed By:
Sabrina McClune, 21.06.24
Sam Kendall, 21.06.24
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Originally posted on 15 02 22
Last updated on July 4, 2024 Sabrina McClune is a Women in Tech Excellence 2022 finalist who writes extensively on cybersecurity, digital transformation, data protection, and digital identity. With a postgraduate degree in Digital Marketing (Distinction) and a First-Class Honours degree in English, she combines a strong academic foundation with professional expertise. At Beyond Encryption, Sabrina develops research-led content that supports financial and technology sectors navigating the complexities of the digital age. |
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