Add to Cart…an Amazon Loan?

A Bain brief suggests direct-to-consumer financial services from Amazon would be very popular. What could this mean for financial inclusion?

‘Tis the season for shopping online, and if you’re one of the millions who uses the e-commerce behemoth Amazon to buy everything from streaming shows to steam irons, you could someday be ordering something else on Amazon: financial services.

There are indications that if Amazon went into financial services for individuals, they would be quite profitable – as with most things they do: a recent brief, published by Bain & Company, indicates that if Amazon were to get serious about this, there would be a lot interest from potential customers.

In fact, the brief revealed that among respondents who were Amazon Prime members – those who pay an annual fee for free two-day shipping and other services – 65 percent would be willing to try a free online bank account offered by Amazon. And even among people who don’t buy through Amazon, 37 percent would be willing to give it a shot.

In Amazon We Trust?

Consumers give Amazon a Net Promoter Score of 47, significantly higher than the score of 31 for regional banks on average, or 18 for the national bank average, according to the brief. (The Net Promoter Score measures the willingness of a customer to recommend a company’s products or services). While that sweater you received from a third-party seller might not have lived up to expectations, chances are minuscule that something went wrong on the payments side. And perks such as no-questions-asked returns have also bolstered trust among customers.

Perks such as no-questions-asked returns have also bolstered trust among customers.

“Creating a basic banking product would not only save Amazon on interchange costs, but also give it more direct influence and insight into customers’ finances and spending, rather than having banks as the intermediary,” the Bain brief states. “The bank account could become a platform for a whole new range of services for a company that already has enormous reach among America’s most valuable banking customers.” In-house loans could become among those new services.

Currently, Amazon’s financial services operate mainly at the B2B level, behind the scenes. For example, Amazon Web Services supports financial institutions such as Capital One with things like grid computing, data analytics and digital transformation.

However, it may come as a surprise that the company already makes small-business loans, to the tune of $1 billion loaned out to 20,000 or so merchants in the US, UK and Japan. Amazon Lending (which lends to larger companies, too) gives loans up to $750,000 overall, and its Amazon Cash program allows non-bank account holders to load money onto their Amazon accounts through their phones. There are some indications Amazon might also branch into mortgage lending.

Amazon has some advantages in this area over other super platforms, such as Facebook and Google, which have been occasional players in financial inclusion, because storing user payment data is already integral to the purchasing process on Amazon. It’s clear that many millions of Amazon already trust it to handle their financial data. The next step may be for Amazon to trust its customers by providing them loans in milliseconds.

What an Amazon Foray into Financial Inclusion Could Mean

What benefits and what issues could instant Amazon-powered loans raise for a taco stand owner in Nicaragua or a farmer in Benin?

At the CFI 10th Anniversary Symposium on November 1, we had attendees from diverse financial inclusion backgrounds and geographies to jot down thoughts about the impact of super platforms. Some were positive. One participant noted, “Super platforms have the best chance to close the usage gap and fulfill the promise of customer centricity…and blending financial services into other online behavior.” Another participant noted their last-mile connection power as an advantage.

Others were more circumspect. “There is a risk that competition will be purchased and dismantled,” wrote one. “There may be a race to the bottom…and the ability to arbitrarily exclude people,” stated another. Another attendee thinks, “Super platforms lead to a concentration of wealth and data and to destruction of local jobs.”

For many traditional banks, the concept of the Amazons of the world entering this space is enough to hasten a nervous quest for digital financial service excellence. Maybe just the thought of Amazon getting into financial inclusion can motivate financial institutions to invest more.

The Bain brief notes, “For retail banks, the key lesson is that their main competition consists not of traditional banks, but rather the large technology firms such as Amazon that have upended entire industries. Tech firms have already reset customer expectations for what a good experience feels like, and Amazon’s expected entry into core banking heightens the urgency of accelerating work to improve the customer experience, largely by making it simpler and more digital.” This attention to user experience detail should extend to the billions of underbanked, too.

How Team Bezos Could Directly Support Financial Inclusion

If Amazon is getting into financial inclusion, it hasn’t said so publicly.

A more logical foray into financial inclusion for the underserved could involve support for smaller fintechs to leverage Amazon Web Services to lower transaction costs in the developing world. Leveraging AWS on the backend could make it easier for developing country entrepreneurs in the global south to enter into the fintech space before major consolidation matures. This strategy wouldn’t stretch Amazon’s core strengths, which do not yet include a large ecommerce presence in in the developing world. Amazon could also offer similar services — or collaborate with — organizations like Stellar, a network with which fintechs integrate to provide fast and inexpensive transactions.

Whether or not they enter the financial inclusion space, Amazon’s reach in finance is quietly spreading. It’s something to ponder when adding that present for Aunt Mildred to your cart this holiday season.

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