Amazon has always taken an aggressive approach to business, transforming the face of retail and the way we consume books in the 22 years the company has been in operation. Utilizing aggressive growth tactics is Amazon’s M.O., and it uses it to great effect, disrupting entire industries in the process.
This is not necessarily a bad thing as it has enabled even the smallest of companies to access markets that may have been well beyond their reach otherwise. Amazon Marketplace was a game changer, there’s no questioning that.
Consumers with little time on their hands suddenly found themselves faced with a trusted marketplace, filled with trusted retailers that they could place orders with from the comfort of their own homes – no more traipsing around shopping malls looking for something that may not even be in stock. The fact that they could shop from their smartphone too was just icing on the cake. There was a worry, at one point, that the emerging generation would forget what a physical store looked like and this would herald the decline of the bricks and mortar retailer.
Obviously, worrying about this proved to be time wasted. The acquisition of Whole Foods for $13.7 billion was just the latest move in the Amazon drive to sink its fingers into as many pies as it can, wasn’t it? Apparently not, no.
Amazon and the case of the small business loan
Amazon, very quietly, has been making some very strong inroads into the small business loans market over the past 12 months (at the time of announcement). How strong have these incursions been? They recently trumpeted that during the 12 month period, they had made $1 billion in small business loans. These loans were not restricted to the USA, either. In fact, over 20,000 small businesses in the United States, the United Kingdom and Japan had been in receipt of business loans from Amazon.
If Amazon pursues the small business loans market in the same way that it aggressively went after online retailing and eBooks, then it could potentially change the banking industry forever. Business loan providers could also suffer, although they have less to worry about being able to move in slightly different ways than banks – and faster than Amazon can right now. The Best Egg review sheds some light on how they work.
Starting life selling books and Compact Discs, way back in 1995, Amazon has amassed total sales of over $400 billion and making Jeff Bezos (Amazon CEO) the richest man in the world, with a personal fortune of $90 billion, into the bargain. Being bold, aggressive and not afraid of charging headlong into the fray is what allowed Amazon to rank among the top 10 U.S. employers.
The fact that they branched out into non retail areas is a little surprising, giving their past track record, but the business loan market is not unknown to them either. Many people don’t realise this, but Amazon actually started this several years ago. Amazon Lending was born in 2011, and to date has topped $3 billion in loans.
Why are we only really hearing about this now? The fact that a third of their total came in 12 months, while the rest was accrued over a 6 year period, shows just how rapidly they expanding in the small business lending space. It also emerged that over 50% of companies that take a loan with Amazon come back for at least one more.
Amazon small business lending: A license to print money?
Entering the loans arena was actually a rather smart move by Jeff Bezos. Amazon will, naturally, earn interest on all approved loans. With money continuing to be earned via retailers on the main Amazon site, the company is suddenly more cash rich than ever before. With money being raised, almost passively, there is more available to lend, earn interest on, to lend, interest on… You get the idea. Amazon are making superb progress in an exceptionally lucrative market.
While Amazon lending is invitation only, those that are approached are able to apply for loans between $k and $750k. It should also be noted that companies Amazon approach are already selling on the site. This in of itself is a genius move, with Amazon collecting cash on both ends of the retailer – interest on repayments, and increased fees on retailer sales.
Seemingly not content with the U.S., UK and Japan, the company has been dropping hints that it is looking at expanding to other countries where there is an Amazon TLD (top level domain). Strong marketplaces that they could be looking at include India, Canada, France, and China.
The Vice President of Amazon Marketplace, Peeyush Nahar, is quoted as saying “We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success.”. Obviously, he has to say that.
There’s no doubt that smaller business will benefit enormously, but let’s not pretend that Amazon got into the loans business for altruistic reasons. There’s nothing wrong with making money, the nation was built on the principle of capitalism, but nobody should be any illusion about the fact that Amazon has done this with their coffers in mind, not the retailer.
Should banks really be that concerned?
In a word, yes. In many ways, banks are still stuck in the pre-internet days where loans have to be discussed in person, in front of somebody whose sole purpose is to judge whether or not you can make them money. Loans provided over the internet work in a similar way, of course, but there is no sense of being weighed and measured and the fact that you don’t have to set aside an entire day to do it is even better.
Given the choice between a 30 minute process, at the very most, and a drive to the bank after spending precious, copious amounts of time preparing beforehand, getting statements and forecasts prepared and printed, the vast majority of small business owners are going to choose the digital option.
The small business operator simply does not have the time for traditional banking and the longer it takes traditional banks to realise that, the closer to the edge they become. Services like Amazon Lending are slowly but surely taking over the space traditionally occupied by the big bank so yes, banks should be worried.