Amazon is invading finance without really trying

I did it again.
I did it again.
Image: AP Photo/Ted S. Warren
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Many people believe that big technology companies will soon become major competitors to traditional banks. But Amazon has invaded their turf without offering many financial services—its mammoth cloud-computing business is instead reshaping how the financial industry works.

Amazon Web Services (AWS) is the biggest provider of cloud computing, which has “massively” lowered barriers to entry for financial startups, according to Antony Jenkins, the former Barclays CEO turned fintech entrepreneur. He says tech firms used to raise millions of dollars just to buy servers; now, people who want to take on banks can use the tech giant’s cloud to quickly set up systems.

An example is Starling Bank, which is built on Amazon’s cloud. CEO Anne Boden—previously a technology executive at Royal Bank of Scotland—says processes that once cost $30 million can be done for $30,000, thanks in large part to the cloud. Likewise, 140 people can implement what used to require ten times as many employees. One of the main advantages is being able to quickly add (or subtract) computing capacity. AWS also offers machine learning tools and some data storage processes are automated, which can reduce headcount further.

AWS is a crucial money maker for Amazon, and it has more market share than its next five biggest competitors, including Microsoft and Google, combined, according to Synergy Research Group. The service, which charges customers by the second, raked in $4.6 billion in revenue in the most recent quarter, up 42% from a year earlier.

“There’s still something a little shocking about seeing a business unit the size of AWS consistently growing its revenues by over 40%,” said John Dinsdale, chief analyst and research director at Synergy.

Still, there’s no guarantee Amazon will stay on top. AWS may be leading when it comes to startups, but many large companies run their own data centers and will probably have to migrate to the cloud eventually. Goldman Sachs recently led a $45 million investment in a company called Skytap, which provides services for that transition.

At an AWS conference this week, River Island’s chief information officer said the fashion retailer moved its website to Amazon’s cloud, which has helped it compete with the industry’s newcomers—it can now boost capacity during Black Friday sales, and it’s cheaper and easier to try new things in digital retailing. Given Amazon’s starring role in the fundamental disruption of the retail industry (paywall), a world in which these companies depend on Amazon’s online retail platform as well as its cloud technology is notable, to put it lightly.

The same thing could happen in finance. Amazon already provides some lending for small- and medium-sized companies and is widely expected to offer more financial services in the future. At the same time, the cloud—currently dominated by AWS—serves as a technological backbone for many financial companies. This could be awkward if they eventually go head-to-head with Amazon, as they would find themselves dependent on one of their prime (ahem) competitors.