Amazon is to offer short-term loans in the form of credit to small businesses that trade on its Marketplace platform. This is interesting for a lot of reasons, including that banks don’t like lending to them.
Why don’t banks like lending to small businesses? Because they are high risk. Why is Amazon doing it? Because it ties those customers even closer, it’s an underserved sector and the company knows a huge amount about them. What’s not to like?
It’s long been a mystery to me why Apple hasn’t moved into the wider financial sector (Apple Pay’s progress has been very slow) when it’s sitting on a cash mountain, well a mountain range, of $200 billion. Maybe too much regulation, too much competition in the general market and too little margin (although many payday loan companies’ interest rates are obscene, if legal) to bother? Which is what’s so smart about Amazon’s carefully targeted loans service, tailored to specific, unmet needs.
As The Financial Times’ article [subscription needed] says, “Imagine Apple lending money to app developers, or sending out ‘artist and repertoire’ scouts to find new acts for iTunes. Google financing independent studios for YouTube. Facebook moving into payments. Supporting small businesses neglected by banks is good public relations. And lending increases loyalty; if your bank manager is also your IT provider and your distributor, you are less like to sell via a rival service.
Few companies have as much information about their customers as telcos, but few are doing anything with it to earn extra revenue and benefit customers. Brazil’s Oi offered payday loans years ago and M-PESA in Kenya makes most of its profits from loans, not payments, and O2 Drive in the UK offers discounted car insurance for customers who are good drivers. As Orange, which is opening a mobile-only bank this summer in France, points out, “85 percent of banking interactions are carried out on smartphones”. But this is a handful of examples from an industry that serves most people on the planet and an era where banks are generally wildly unpopular and considered untrustworthy, and regulation in many parts of the world is encouraging competition in the telco sector.
Amazon’s move should instill telcos with a sense of urgency because, as the FT says, this is “just the start for techbanking”.