Why Amazon’s Growth in Small Business Lending Threatens the Banking Systems

by Brian Riley 0

Sales Assistant With Credit Card Reader On Digital Tablet

 It all started with books, and as Atlantic Monthly will tell you, the first title was a bit of a sleeper: ” Fluid Concepts And Creative Analogies: Computer Models Of The Fundamental Mechanisms Of Thought.”.
Full disclosure: I personally wrote Jeff Bezos in 1998 and told him that I was so impressed that Amazon was able to deliver a classic book [Harvey Penick’s Little Red Book] about golf for one of my kids, that I thought Amazon could do everything Barnes and Noble could, except for serving Starbucks coffee. Bezos’ personal email response to me: “We will. Just wait”. But I digress.
Amazon has since transformed retailing with fair prices and lightning speed delivery. Prime is expensive but worth every penny. Last week, they stepped into grocery stores with a $13.7 billion purchase of Whole Foods, which gives them a huge distribution channel for cross selling.

Now, watch what they do to the B2B sector.

• Amazon also recently announced that it had surpassed $1 billion in small-business loans to more than 20,000 merchants involved in its Amazon Marketplace in the U.S. UK, and Japan during the past year.

• In fact, since Amazon Lending began in 2011, it has surpassed $3 billion in loans to small businesses. The company is making money from both the sales of products via its online platform and by charging interest on the loans.

So, now with their loan business, they have access to Amazon merchants who can get pre-paid on their sales, curing revenue stress and cashflow problems.

• Amazon’s entry into mainstream small-business lending would knock the small business banking industry for a loop.

• Amazon could disrupt small business finance in the same manner that it forever changed retail.

• Flush lots of cash to lend, Amazon fairly easily entered the lucrative small business lending marketplace.

• Currently, the company only offers short-term business loans ranging from $1,000 to $750,000 for up to 12 months to micro, small and medium businesses that sell on Amazon.

So begin to think of Amazon being omni-present on the retail and wholesale side of sales, and no wonder they are the “number 4 company in market capitalization”, with $400 billion in sales.

Bankers, beware. This is no longer about coffee.Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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