"Welcome to Amazon Bank. How can I help you?"

The Everything Store

Have you ever heard term The Everything Store? It went public (if we could call it like that) in 2013 from the name of the book by Brad Stone (The Everything Store: Jeff Bezos and the Age of Amazon), which I highly recommend to read for everyone (!).

It seems like there’s nothing that Amazon can’t do.

4 years later, Amazon might literally become The Everything Store. Among other things, it does cloud computing services, music and video streaming, payments, credit cards. And now it has entered the Financial Services industry.

Hence, the statement in the headline is not utopic at all, or derived from a science fiction book – it is real, and it is being asked numerous times per day. In one form or another, thousands of merchants are addressed in a similar manner when they sign up for Amazon Lending.

Amazon Lending Threatens the Banking System

Amazon’s lending business is accelerating – the company has issued $1 billion in loans in the past year to merchants selling on its marketplace. Launched in 2011, tech giant’s lending business uses data from more than 2 million merchants to identify those it deems credit worthy.

The idea is pretty straightforward here: to offer new financing options for small merchants that could have trouble securing loans from banks. Such a solution is not only a way of helping its customers to grow, but also an additional income stream for the online retailer.

Amazon Lending not only helps Amazon customers to grow, also it's an additional income stream for the online retailer.

Up till now, the Seattle-based e-commerce giant has lent out $3 billion to more than 20,000 small businesses in the US, UK, and Japan. These numbers will definitely grow in the future since Amazon uses algorithms to identify merchants with good selling histories (this effectively minimizes the default risk), who are then offered loans ranging from $1,000 to $750,000 payable within one year. Those taking the short-term loans repay the company through sales made on the site.

So, where’s the threat?

Having a huge pile of cash, it might only be a question of time when Amazon enters the small business lending outside of its marketplace. If doing so, it has several huge advantages over all other players: size, brand awareness, trust, and flexibility (in essence, being less-tightly regulated than banks).

Size, brand awareness, trust and flexibility are Amazon's key advantages in small business lending.

There is one additional component that Amazon delivers perfectly – amazing customer experience. According to CB Insights, customer satisfaction at Amazon is 86%, compared to Citi (82%), Capital One (80%), “all banks” (80%), TD Bank (79%), and Bank of America and Chase (each 75%). To add, as I have mentioned earlier, studies have shown that most millennials would rather set Facebook as their default bank account, or bank with Google, Amazon etc., than their existing banks.

Bringing it all together

All in all, as correctly pointed out in one FinTech conference this year, the idea of Amazon Bank is one of the key trends to watch in financial services industry over the next year. Although it might be questioned whether Amazon Lending can be scaled to small business lending per se (due to, for instance, more limited credit analysis or possible stricter regulations), it is definitely something that banks have to pay very close attention to.

If ignored, this can be yet another industry that technology company will disrupt. I have briefly covered GAFA (Google, Apple, Facebook and Amazon), and their approach to banking in my last 3 passages. Follow the links for Part I, Part II, and Part III.