As I was listening to Cathy Wood`s interview, CEO of ArkInvest, from the Exponential Africa Show; she triggered an insight around investing and disruptive innovation.
One can`t be a banking analyst or an automobile industry analyst anymore, with the same silo-ed focus required over the past decades. Industry-specific analysts bring a lot of experience from their respective sectors but lack the insights of innovative business models enabled by the `future technologies` (that are already here by the way).
I will elaborate on this topic over the next couple of weeks with several examples and insights on where I see the market heading to.
This week I will look at Amazon`s SME lending business facts and figures, as there have been several articles following the announcement of a lending partnership with Goldman Sachs.
Are Banking analysts and Tech analysts collaborating to analyze such partnerships and develop attribution models for the value co-created?
Goldman and Amazon’s lending partnership presents a huge threat to fintechs Business Insider
Amazon and Goldman Sachs Wade Deeper Into Financial Services Motley Fool
Goldman Has Some Boring Plans Matt Levine Bloomberg
Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.
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Amazon has been offering loans to its marketplace sellers since 2011.
These loans have been by invitation-only. So, on Amazon lending there is no application or evaluation process. It is kind of a reverse process compared to seeking a loan on Kabbage or Square, or Paypal (alternatives for SME borrowing in the US).
On top of this, the Amazon loans come with more restrictions. The loans can only be used to get more inventory and do more business on the Amazon marketplace, NOT on any other distribution channel. Merchants of course, can spend their borrowed funds to `invest` in upping up their game to competing with the Amazon advertising algorithm. Which points to the growth of Amazon`s advertising revenues (read more here Advertising is the new high-priced tobacco and vendors are addicted to it).
Amazon has close to 6 million sellers on its marketplace, however, only 2.5 million are active sellers and furthermore, only 24,000 generate sales over $1million (as of 2018).
That explains why the Amazon lending business has only serviced around 20,000 enterprises since its launch. Tearsheet reports a total of $5billion of loans issued since 2011.
Amazon continued to use the same cautious approach to lending – by invitation only and with restrictions – even after establishing a partnership with Bank of America in 2016. Larger sellers report that they can get much better rates from other lenders (Paypal, Square, Kabbage).
Amazon lending data over the past four years shows that it has not been a business that Amazon sees as strategic.
$661 million loans in 2016
$692 million loans in 2017
$710 million loans in 2018
$863 million loans in 2019
What will change with the Goldman Sachs lending partnership? It can`t simply be the access to a bank`s balance sheet because Bank of America had that capacity too. Last year also, Payoneer, the global payment platform, partnered with Amazon offering working capital for merchants selling on Amazon (figures not yet available).
Will Goldman Sachs enable Amazon to offer competitive real-time loans to all Amazon merchants?
Amazon lending serves only 1% of its active merchants.
What multiple can the Goldman Sachs partnership attain, while still keeping a high percentage of the borrowed funds spent within the Amazon ecosystem?
As Matt Levine says, there could be another scenario which is more in the spirit of Goldman`s interestingness. A Goldman Sachs lending offering for the AWS ecosystem.
The New Breed Of Lender That’s Making Loans To Amazon Sellers Based On Their Sales Data
