Amazon could upend Wall Street and become your lender, too
AMAZON.COM Inc has profoundly changed the way clothes and books are sold and is now targeting food shopping. Its next project may very well be taking on the heart of Wall Street.
The technology giant has had several conversations with banking regulators over the past two years on a wide range of topics, including “financial innovation”, according to lobbying disclosures reviewed by American Banker.
It already has a lending operation that it started in 2011 to support merchants that sell on its marketplace. This unit has grown increasingly popular, to the point where it originated US$1 billion (RM4.24 billion) in loans over 12 months.
Meanwhile, new United States banking regulators seem more willing to entertain the idea of granting banking charters to non-traditional firms, opening them up for more business that was once reserved for traditional financial centres.
For example, the acting comptroller of the currency, Keith Noreika, spoke at an Online Lending Policy Summit in Washington in late September and talked broadly about financial innovation, particularly as it related to non-traditional firms.
While the conversation seemed to be geared at firms such as Social Finance Inc and Lending Club, it evolved quickly into talking about big technology firms and how their roles could evolve in finance.
This is not a new idea but one that has taken a greater degree of immediacy with the new administration.
The online-based firms that most people associate with peerto-peer lending don’t have a tonne of capital and have been challenged by leadership and credit issues.
They could certainly demonstrate a new way of doing business for big banks, but they hardly pose a real and imminent challenge to Wall Street.
Big Tech is different. If an Amazon or Alphabet really wanted to create an online lending platform, or securities-trading system, they could present some serious competition to the existing finance players.
“Amazon has very broad ambitions,” said Ram Ahluwalia, founder of PeerIQ, a startup that tracks loans originated on online systems.
He attended the online lending meeting last month and noted that many people were talking about big technology firms plowing more into financial services, including regulators.
Amazon was not alone. Others, such as PayPal and Google, had also entertained banking ideas. In fact, they had joined forces, creating a lobbying group called “Financial Innovation” together, according to American Banker.
Amazon, however, is uniquely positioned to transform the notion of Wall Street, especially as the tech giant collects data on its users and amasses an ever growing audience. It could rethink the way basic processes are done, shrink costs further and quickly generate a critical mass of trading activity on electronic platforms.
The tech giant has been known to sacrifice bigger margins to win business with the lowest prices, and this would work tremendously well in finance.
In this way, Big Tech in the US would be taking a page from China, where Alibaba and Tencent Holdings have already become big lenders, using their client data to their advantage.
Wall Street hasn’t truly faced a threat from a digital disruptor yet. It has reason to fear Amazon. Bloomberg