Welcome to the Bank of Amazon: How Consumer Companies Are Changing Financial Services
For centuries, the traditional banking process has been somewhat straightforward. A local bank was chartered; it borrowed money from a central bank or wealthy investors; it lent that money to those who needed it; and it charged interest for the duration of the loan.
Saving for retirement has been pretty straightforward, too. You worked for a company and vested in their pension plan, you joined your employer in contributing to a 401(k) plan and you likely saved on your own through a number of self-directed options, such as traditional and Roth IRAs.
While traditional banking and investment processes are likely to continue well into the future, there is a growing interest among large consumer companies to shake things up a bit.
A recent study from the fintech-focused website GoMedici.com indicated that more than one-quarter (27%) of large e-commerce, food tech, media and social media, consumer tech and transportation tech companies that they analyzed have entered the financial services space. Roughly one-third of these companies offer more than one financial service. These companies include Facebook, Uber, Google, Microsoft, Airbnb and, of course, Amazon.
Amazon launched its small business loan program in 2011 and has lent more than $1 billion since it began. Several initiatives have been launched since (such as its Amazon Cash program), and more is expected in the coming years. Few companies have the resources that Amazon has – so what will this mean if e-commerce, social media or other similar, well-known consumer brands enter the retirement savings space?
For one, we are likely to see greater demand for more flexibility and competitive pricing. Just as Vanguard pioneered the indexing model and challenged active account management, consumers are likely going to expect more convenience and lower fees. For financial advisors, it could mean increased opportunities and better use of technology to save, track and monitor retirement savings progress.
It could also lead to a different set of regulations on financial and retirement services providers. Regulating banks and ensuring they maintain a certain level of cash is one thing, but legislation does not currently exist to hold other types of companies to the same level of accountability. This could create changes that will lead to unintended consequences for both existing financial services providers and consumers alike.
Retirement is an incredibly important reality that everybody should be thinking about – and thinking about early. Regardless of how the retirement landscape changes, Millennium Trust is here to help you save for your retirement.
To learn how our services can help, visit our Retirement Services webpage.
The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.