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Why Amazon’s Banking Play Is Doomed

March 6, 2018, 2:39 PM UTC

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It’s March 6, but Old Man Winter isn’t done with us yet on the East Coast. Aaron in for Adam, contemplating a history lesson about retailers and banking as Amazon is rumored to be eyeing the market for financial services (complete with semi-tongue-in-cheek headline).

The Wall Street Journal reported on Monday that Amazon was talking about partnering with J.P. Morgan and others to offer its customers a low cost, checking account type of product that would appeal to younger and perhaps lower income people who don’t have traditional bank accounts. That, in turn, reignited fevered speculation that Amazon was finally going to make the banking industry’s disruption nightmares come true, as McKinsey & Co. predicted last year.

The fact that Amazon can’t easily become a bank didn’t come up much. Nor did the history of intense political opposition to retailers becoming banks, whether it was Montgomery Ward in the 1960s or Sears and J.C. Penney in the 1980s or Walmart in 1990s. There are multiple reasons why lawmakers have opposed mixing banking and commerce, including expanding the federal safety net of deposit insurance in effect to cover another large part of the economy and creating too many possible conflicts of interest in lending and investing decisions. Walmart has certainly gotten the message. “We have no plans or intentions to be a bank. I think we’re great at being a retailer,” Walmart senior VP Daniel Eckert told NPR last year.

Another reason to tamp down the speculation about Amazon’s efforts is the rumored goal of reaching more customers who don’t have bank accounts. It’s certainly a tempting target and a laudable goal. There about 9 million households without bank accounts and another 25 million with limited banking who rely too heavily on payday lenders and other not-great alternatives. But this is a well, well trodden path strewn with failures. Most recently, another popular consumer brand, T-Mobile, tried to create a debit-card linked account with an accompanying smartphone app for its millions of lower income customers who didn’t have regular bank accounts. Two years later, the program was dead due to lack of interest. American Express has also tried and largely failed (although it still offers its Bluebird prepaid card with…Walmart).

The talks at Amazon come as the e-commerce giant may be reaching a saturation point in attracting wealthier Americans. The prospect of attracting more middle and low income customers, who rely more on Walmart, is no doubt appealing. But that doesn’t mean there’s a high-tech banking answer to bring them on board.

Aaron Pressman


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This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.