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 6 essential lessons for digital growth.
1. Data for every decision
Amazon spends a sizeable amount of their resource collecting and analysing data, ensuring that strategies and decisions are based on relevant customer information. This manifests itself in several ways, including product recommendations, supply chain and price optimisation, and purchase and return request screening.
Due to the nature of their work, financial organisations naturally have access to significant data pools. Although data protection is also key, financial services companies have the potential to leverage this information to bring continual improvements to 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.
The key to using data for decision making in the way of Amazon lies not only in top-level change but in building systems to leverage data in day-to-day operations.
“Being a data-driven organization 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 specifically tailored to each customer based on product category interests and purchasing history.
Personalisation like this 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 who provide recommendations, alongside 80% being more likely to purchase a product from a brand with personalised experiences.
When applying this to financial organisations, studies already reveal personalised recommendations positively impact firm revenues. Promoting digital pathways that appeal to customers’ current concerns, for example, 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.
Though personalisation can positively impact revenue, at its heart is the customer.
“The science question we are looking at is ‘How do we optimize decisions to improve our customers' experience over a long range of time?'”
3. Build and support sustainable practices
With COP26 rallying the world to reach the 2050 Net Zero target, businesses are placing a greater emphasis on using and investing in climate technology (ClimaTech), with 6/10 technology start-ups in the UK currently focused on creating green tech. Amazon has already carried out several of 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 by 2025 in an effort to reach company-wide Net-Zero by 2040.
Financial services sustainability efforts have some way to go. Research has revealed that more than $3.8tn in finance has been delivered to coal, oil, and gas firms since the initial Paris Agreement in 2015. Additionally, the financial services industry still has 70% of their processes reliant on paper, with an estimated 507 million documents sent to customers each year – that’s equivalent to the deforestation of around 50,000 trees annually.
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."
4. Don’t be afraid to pivot
Change is a natural aspect of each businesses journey. Amazon started as an online bookstore in 1994. However, with the creation of eBooks, they realised that their business proposition was endangered by the emerging technology.
They decided to invest in the opposite product 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 cannibalize yourself than have someone else do it.”
This move futureproofed the business, with Amazon now owning 67% of the eBook market and having expanded way beyond books. Amazon is an eCommerce store for everything from technology to clothing to groceries. This is a jump from its humble beginning, only possible because of a sharp pivot away from its initial model.
With digital transformation taking priority among businesses across the globe, 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 ensure change is building differentiation into your organisation where it matters, rather than forever moving in the direction of “the shiny and new”. Organisations that pivot in the right direction and differentiate themselves from the rest, 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 requirements of a digital transformation in your own company, download our guide to implementing change in financial services without rocking the boat.
5. Engage on multiple channels
Amazon offers an omnichannel experience, allowing customers to access their services by a web browser, smartphone app, 589 physical stores dotted across the world, 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 before achieving the ‘Amazon experience’. Although digital services such as apps and portals are becoming more abundant, especially in banking, the 360-degree experience customers are used to with Amazon is still lacking in touchpoints, largely due to regulatory or security constraints.
As compliant solutions to breed multi-channel access for financial services arise, one potential channel banks are currently exploring is voice. ‘Voice banking’ will see virtual assistants such as 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 would be a desirable channel for customers to use, with 44% saying they would be interested in using voice assistants for everyday banking activities.
“Consumers are demanding personalized, real-time engagement, and are becoming more conscious about the time spent interacting with companies and the ease to solve issues through different channels.”
6. 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 taken the world by storm is Amazon Prime, the next day delivery service available to customers on a subscription service that has set 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 available and standardised, the lion’s share of progress will be toward homogenisation. The competitive advantages for the organisations that win big will come from utilising technologies to create systems that demonstrate innovation – that provide customers with the new and unique.
There are many technologies yet to be utilised in financial services such that they are truly innovative. One that Amazon is also experimenting with itself, is Biometrics. The use of biometric identifiers for transactions and account access could increase security and prevent fraud, but there are logistical elements the industry has yet to crack. Staying ahead of the competition won’t just require technologies but the right people to solve their problems.
"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.''
Key: Pair efficiency with security
To carry out the large volumes of speedy transactions and deliveries they are now known for, Amazon has had to become increasingly efficient. Their digital services are streamlined, with one-click payments available to customers, as are their physical operation, for example, the use of robotics in their warehouse. Automation is used in their Amazon Go stores, removing the need for human staff to help customers with purchase support, freeing them for more complex customer service activities.
With such a significant focus on digital, Amazon has needed to ensure 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 other fraudulent activity. Amazon is also securing the cloud ecosystem with security solutions deployed for AWS users.
As financial services begin to step into the digital realm more firmly, their automation and cybersecurity practices are set for a significant rehaul. 80% of FS firms saw an increase in cyberattacks due to Covid-19, and 37.9% of surveyed individuals report only a sporadic availability of 2FA and other security elements to protect accounts. With the 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.”
Is your firm focused on the right technologies to keep up with the pace of change? Read the full report: 20 Technologies That Will Make the Financial Services Success Stories of 2023.