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Amazon Could Become the Next Big Bank

The e-commerce giant is positioning itself as a potential financial juggernaut

By Aaron SchnoorPublished 3 years ago 3 min read
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Amazon Could Become the Next Big Bank
Photo by Christian Wiediger on Unsplash

After taking on industries like publishing and groceries, e-commerce giant Amazon has turned its sights on the financial industry. As Steve Cocheo, executive editor of the Financial Brand, wrote in 2018, Amazon is quickly becoming a formidable financial institution: “Nothing can stop Amazon. Not even banking regulators or geographic borders can slow them down. With patents, patience, a willingness to fail, a huge and devoted customer base, a universe of data, and gobs of money, Amazon represents a real threat to the traditional banking industry.”

Let’s take a closer look at what steps Amazon is already taking to make waves in the finance.

Amazon, the lender

Since 2011, Amazon has provided loans to the small businesses in its online marketplace. These loans, which are offered by invitation only, range from $1,000 to $750,000 and can last for up to one year.

As CNBC reported, Amazon’s 2018 outstanding loans totaled $692 million. It’s a small figure compared to the lending programs of major banks, but the number represents a sizable customer segment that Amazon has thus far taken from larger financial institutions.

Although it’s new to the game, Amazon is already marketing itself as “a straightforward approach to business lending⁠ — we make the borrowing process easy so you can focus on more important things, like growing your business.”

Partnering with big banks

Amazon’s lending program has led to major partnerships with two prominent banks. In 2018, the tech company teamed up with Bank of America. In reporting the deal, CNBC argued that “partnering with Bank of America allows Amazon to reduce its risk and access capital specifically to provide credit to more merchants so they can acquire inventory.”

Amazon didn’t just stop with Bank of America. Just this month, it was reported that the company may expand its lending program by partnering with Goldman Sachs.

In addition to providing capital to Amazon’s sellers, the online retailer can use these partnerships to continue expanding within the financial industry. Allying with Bank of American and Goldman Sachs will allow Amazon to continue making a name for itself as a business lender, eventually moving into other markets within the banking world.

Reinventing banking abroad

Amazon may not have a head start in the U.S. banking industry, but that hasn’t stopped the company from laying financial groundwork abroad in countries like India, where it accepts cash deposits from customers. As the Financial Brand reports, “In India, [Amazon] has publicly committed $7 billion to build its operations… The company has already gone through over $27 million in capital in order to produce a bit over $1 million in Indian payments revenue through multiple programs.”

Amazon’s influence extends far beyond India. As of 2018, it operated in 58 countries, reaching an international online population of 1.2 billion people. With global online spending expected to exceed $4 trillion in 2020, Amazon’s reach will continue to grow.

As Amazon continues to broaden its reach, it will continue marketing its services. And, according to Forbes, “When Amazon is helping connect millions of consumers looking for various financial services — lending and deposit — from financial institutions, Amazon will not only help match those consumers and providers, they’ll vertically integrate their services.”

In an age of increasing digitization, technology’s role in the banking industry will continue to expand. No company in the world spends as much on technology as Amazon. In 2018, it spent more than $13.8 billion on technology — the “biggest corporate IT spender in the world, according to the Wall Street Journal. That same year, JPMorgan Chase and Bank of America spent only $9.2 billion and $8.4 billion, respectively.

Amazon, the leading tech company in the world, has a superior edge over any financial institution in terms of its technological capabilities. By capitalizing on opportunities in emerging markets, partnering with prominent banks, expanding its loan program, and developing its tech services, Amazon could easily become a formidable competitor to any banking institution.

© Aaron Schnoor 2020

Originally published here.

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