“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,” said Peeyush Nahar, vice president for Amazon Marketplace, in a company announcement. “Small businesses are in our DNA. Amazon is providing capital to small businesses to help them expand inventory and operations at a critical period of their growth. We understand that a small loan can go a long way.”
Traditional lenders shied away from small merchants after the 2008 financial crisis, which created an opening for other sources of financing, including marketplace lenders and other FinTech companies. Amazon has the advantage of being less-tightly regulated than banks and having near real-time data on sellers’ businesses and access to their customer reviews. Having this wealth of data minimizes credit risk and is quite important in deciding whether to make a loan.
Banks have reason to worry. Many of them, although aided by name recognition, are burdened by the cost structure of the branch system. Today’s small-business owners are time-strapped and want the best deals quickly. The internet enables them to accomplish those goals. Millennials are much more interested in conducting transactions on their phone than walking into a branch of a big-name bank.
Further, many banks — even some of the largest ones, with resources to invest — have lagged in setting up online loan applications. I believe Amazon Lending is going to be a game changer for the entire small-business lending industry — not just for the banks but also for other online credit marketplaces. If banks do not change their way of doing things, the players in the industry could meet the same fate as traditional retailers that are simply unable to compete with the pricing structure, speed and customer service that Amazon provides.
Banks should also be concerned that Amazon won’t stop at small-business loans. The company could get into setting up deposit accounts or eventually getting into mortgage lending and other types of loans. Furthermore, Amazon can do it without the regulatory compliance that banks must meet. If the banking industry remains complacent, Amazon has the potential to transform finance in the same way that it upended retail.
— By Rohit Arora, CEO and co-founder of Biz2Credit.com, a leading online marketplace that connects entrepreneurs with small-business loans