Amazon’s threat to Britain’s bank giants

Internet titan plans to lend small firms millions

INTERNET retail giant Amazon is taking on Britain’s banks by ramping up lending to small businesses.

The company launched its Amazon Lending arm six years ago to provide credit for independent sellers using its Marketplace website – and has now lent £2.3bn to customers in the UK, US and Japan.

The operation has been so successful – with £800m lent in the past year alone – that Amazon is now reportedly considering expanding to more of the 2m firms which use its platform.

Large British banks have long feared an intrusion from big tech companies, many of which have billions of pounds of unused cash which they do not want to bring back into America because of sky-high taxes.

One senior UK executive said that the risk from Silicon Valley giants kept him up at night and was far more concerning than the efforts of small challenger banks trying to shake up the market.

Apple has already moved in this direction with a system which allows users to make contactless payments using an iPhone instead of a bank card.

However, many rivals have been wary of the market because of its burdensome regulation and higher risks.

Amazon’s move to ramp up lending would mark the first time a major online retail player had dived head first into finance. At present, it only allows independent vendors on its site to apply for credit.

Those which are successful get the funds within 24 hours. Amazon then takes fortnightly payments from their account – and if the firm falls into arrears it can hold their merchandise in its warehouses until the bill is settled.

Peeyush Nahar, vice-president of Amazon Marketplace, told the Financial Times that most sellers used the extra cash to buy stock. He said that losses had so far been ‘very, very small’ – and that Amazon could offer other services in future which are similar to those provided by the banks.

‘We started when we heard capital was a big constraint for sellers,’ Nahar said. ‘We’ll have to see what else is constraining them.’

Small businesses have increasingly looked beyond the traditional banks for credit since the financial crisis.

They have turned to unorthodox options, including peer-topeer lenders. These tend to be based online and allow savers to directly lend their cash to companies without a bank in between. These alternative sources are sometimes less tightly regulated – meaning the risks for both borrowers and lenders are higher.

Amazon shares broke above $1,000 for the first time recently. An investor who put £1,000 into the company when it floated in 1997 would now be sitting on around £580,000.