Data Dive, The Uh-Oh Edition: Amazon, BoA And Card Losses

It’s a big week for tech stock watchers – and expectations are running hot and high for the “FANG” results coming soon to a headline near you. Or, at least 75 percent of the FANG results, as Netflix got an early jump on the big week of tech predictions with its better-than-expected results last week.

But that better-than-expected outlook has left analysts with a case of the great expectations going into next week, as tech giants Facebook, Alphabet/Google, Apple and Amazon get set to report –and payments giants Mastercard, PayPal and Visa report Q4 earnings, too.

After last week, though, some good news might be welcome, as there was plenty in the past cycle to give watchers pause. Amazon Go is up and running, causing convenience store operators to go running, too. BoA is getting more expensive for some users, prompting a chorus of consumer complaints. And it seems that perhaps the old adage “neither a borrower nor a lender be” rings true, as reports suggest that consumers aren’t managing their borrowing nearly so well as their lenders might prefer.

It’s a case of the uh-ohs.

Amazon Go Is Up And Running

It’s been a year in the making, but Amazon’s take on the convenience store is finally out in the wild, having opened on Monday (Jan. 22) at its headquarters in Seattle, Washington.

Some of what is on offer on the ground floor of Amazon’s Seattle HQ will be somewhat familiar to convenience and small-form grocery shoppers: pre-made salads, sandwiches, snacks and meals, as wells as beer, wine, produce and a limited selection of meats.

Then there will be the Amazon-only touches, like Amazon meal kits.

But the star of the show will not so much be the inventory as the checkout, which will require no line, no wait – when customers are done, they simply leave.

Which makes the Amazon Go experience all about the check-in.

To make that possible, consumers need to first download Amazon Go app on their mobile device and scan the app upon entering the store. From there, consumers can shop as normal, grabbing goods as they take interest. In the background, the store – using cameras and sensors on shelves, as well as a computer vision system – will log the selected items. What the customer chooses to keep and walk out with is automatically charged to their Amazon account. An email receipt is sent with all items and the total charged.

The stores will not, as early reports indicated, be entirely unstaffed. Workers will be on hand to perform tasks like  checking IDs for alcohol purchases, helping customers locate items and preparing food in the store’s kitchen.

There are questions remaining, of course. Can the system easily distinguish between two people who look similar shopping in close proximity, or keep track of objects customers pick up but do not put back in the right spot, or charge appropriately if someone picks up an item and puts it in someone else’s basket? Right now, on the latter point, the answer is, if you touch it and put it in a basket, you bought it.

But the bigger group of people who should be saying “uh-oh” this week are grocers and convenience stores in specific, and retailers in general. Today, Amazon Go is one store in Seattle. Tomorrow? Well, Amazon is now the proud owner of 470 Whole Foods locations.

Moreover, as Karen Webster pointed out a year ago when the concept was first circulating, Amazon Go is more than a way to change the checkout experience – it’s a play to change the entire way consumers buy groceries, with more of the non-perishable goods moving online and the fresh, must-see goods in smaller, sleeker stores where consumers can literally, well, just get up and Amazon Go.

If Amazon has demonstrated nothing else, it’s that it has a knack for getting consumers to buy things they’ve always bought, in a different (often vastly improved) fashion.

If one happens to be an Amazon competitor looking at Go going live and isn’t saying “Uh-oh” this week, it is possible they might be fiddling as the ship goes down.

BoA Says No More Free Low-Balance Checking Accounts

Shakespeare wrote that “hell hath no fury like a woman scorned,” likely because in his lifetime, he never had the opportunity to meet an American facing higher fees to maintain their checking accounts.

Bank of America faced the collective outrage of Twitter this week with the announcement that they are eliminating their free checking account offering.

Mel San, a Bank of America customer, is not taking this lying down, and has started a Change.org petition protesting the bank’s decision to drop its eBanking accounts that offered free checking as a perk.

Under the new rules, customers must either have a direct deposit of $250 or more each month or maintain a minimum $1,500 balance. If they can’t, a $12 monthly fee applies.

Critics have said the change is likely to hurt lower-income customers who can’t meet the requirements to avoid the fees.

“Bank of America was known to care for both their high-income and low-income customers. This is what made Bank of America different,” wrote San. “I urge you to let Bank of America realize that this is unfair to their customers that have been loyal to them for years.”

The petition has netted about 43,000 signatures so for.

Bank of America noted that students under 24 can receive an exemption that would allow them to maintain their eBanking accounts.

“Our Core Checking account provides full access to all our financial centers, ATMs, mobile and online banking and offers several ways to avoid a monthly fee, including a monthly direct deposit of $250, which equates to $3,000 annually,” Betty Riess, a Bank of America spokeswoman, told CNBC. “This is one of the lowest qualifiers in the industry – and a great value.”

The bank first started offering eBanking accounts in 2010, when BoA was trying to entice customers into online banking. The account offered zero fees as long as customers accessed their statements online and didn’t use a bank teller. If customers used those services, they had to pay a fee of $8.95 each month.

The bank stopped offering the checking account in 2013 to new customers, but maintained it for those who already had it.

And while the first two “uh-ohs” this week were limited to select audiences – retailers and those who keep low balances at a particular bank – there was at least one bigger uh-oh this week that everyone should heed.

A whole lot of credit card losses.

Big Banks, Big Losses

New data released about the four largest U.S. retail banks shows a disturbing pattern in credit card debt: Losses are up 20 percent year-on-year.

“People are using their cards to get from paycheck to paycheck,” said Charles Peabody, managing director at the Washington-based investment group Compass Point. “There’s an underlying deterioration in the ability of the consumer to keep up with their debt service burden.”

A burden that is adding up to some fairly serious money.

Last year, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo suffered a combined $12.5 billion in losses from delinquent credit card loans – roughly $2 billion more than in 2016.

The cards are, notably, still highly profitable, since the issuers earn interchange fees from merchants on every transaction processed, as well as interest rates to customers who revolve their balances. Financial institutions see a return on credit card assets of nearly 4 percent, much larger than the 1.4 percent return that retail banking on average generates (rationale perhaps for the BoA low balance checking decision?). Hence, FIs want to sign up new users, which leads some to worry that they are offering credit to those who can least afford to manage it responsibly.

JPMorgan, who has targeted millennials with its Sapphire brand of cards, added $200 million to its reserves for future card losses in Q4 2017.

But banks have shot back, noting that the strong returns and generally low delinquency rates mean tales of weakness in the segment are somewhat oversold at this point.

Marianne Lake, JPMC’s CFO, said the trend did not reflect a “deterioration,” but rather a “seasoning and maturation of the newer vintages, and growth.”

Uh oh?

It’s all a matter of perspective. Retail’s latest uh-ohs at the hands of Amazon Go could turn out to be the not-so-gentle nudge for retailers – and the ecosystem that serves them – to look differently at solving the issues that plague retail. Consumers’ uh-ohs over a loss of free checking for balances less than $3,000 a year suggests that five years of watching the program evolve didn’t deliver the deeper relationships with the bank that would help to offset the free service. And, some uh-ohs could be speed bumps on the road to cultivating a new, profitable customer base – or not.

Happy last Monday in January 2018.