|08/25/2020||AccrueMe to fund $100M to Amazon sellers|
|08/18/2020||Amazon snags 630,000 sq ft in NYC|
|06/10/2020||Goldman enters SMB lending thru Amazon|
|03/26/2020||Amazon pauses loan payments|
|11/06/2019||JPM helping Amazon, Airbnb to be bank-like|
Potential Match Found in deBanked UCC Filer list
|Company Name||Phone number||UCC Alias 1||Alias 2||Alias 3||Alias 4||Alias 5|
|Amazon Capital Services||Amazon.com|
B2B e-commerce dwarfs the value of retail online transactions — by some estimates, those B2B transactions top some $1 trillion per year in the U.S., which compares to about a half billion dollars of revenue for the B2C side. And B2B e-commerce keeps on growing as more companies — especially small- and medium-sized operations — look to online marketplaces and other channels for daily suppliers, and otherwise shift toward fully digital and mobile operations instead of relying on paper invoicing and other analog supply chain processes.
That’s one of the important factors to keep in mind when considering the prospects of Amazon potentially working with Goldman Sachs to offer SMB lending options by adding the investment bank to the Amazon platform. The possibility of such a business offering — pairing up one of the world’s leading retail, delivery and one-button payment operations with the venerable investment bank — was floated early in 2020 and is already casting a shadow across the B2B and lending community. The backing and brand strength of Goldman Sachs could help unleash a new SMB lending force — one that is also fueled by Amazon’s treasure chest of consumer data and Goldman Sachs’ underwriting expertise. But let’s not get ahead of ourselves just yet.
Significant pitfalls come along with the anticipated opportunities. Not only that, but nothing has yet gotten off the ground, at least not officially. Here’s the idea, culled from previous reports and conversations with experts who know the lending space, along with keen observers of retail and Amazon: The e-commerce operator, eager to build a stronger ecosystem around its already robust B2B marketplace and related operations, would team on SMB lending with Goldman Sachs, itself eager to break into new product lines and add some new fat to its margins.
Amazon and Goldman Sachs aren’t saying too much about that idea and did not comment for this story. The rough outlines of the plan appeared in the financial press in February. But it’s no secret that the two companies are indeed looking for new financial products and new consumer segments.
Amazon has built its B2B business into a unit whose growth has recently outpaced its retail side and even its powerhouse Amazon Web Services. As well, Amazon was on track in 2019 to invest some $15 billion in new tools for small- and medium-sized business, according to company documents and officials.
Granted, much of that explosive growth comes about because B2B is relatively new for Amazon, but such growth demonstrates how well Amazon is gaining — and even keeping — new B2B customers. Many of them are attracted to the digital and mobile efficiency of the Amazon platform, to say nothing of the speed of Amazon deliveries as the Seattlebased company continues to pour massive investment into trucks, warehouses, fulfillment robotics and other logistical areas. Just consider this data point: SMB thirdparty sellers tend to make up more than 55 percent of sales in Amazon stores, according to company financial documents.
Loans offered by Amazon and Goldman Sachs would help those Amazon customers fund purchases of supplies without having to seek out another creditor — or leave the Amazon online and mobile ecosystem.
“If the SMB is already using Amazon to sell and distribute their product, it makes sense they would also accept a loan from them,” Julie Stitzel, the vice president, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, told deBanked. “Amazon is already a trusted partner of their business operations and integrating the financial component is convenient—it saves time because you don’t have to deal with two separate entities.”
The move also would make sense, at least on paper, for Goldman Sachs, Joe Ganzelli, Sr., a Senior Director for Cornerstone Advisors, told deBanked. “They are not in the small business space, and this is a space that, frankly, would be challenging for them to compete in without a partner,” he said. Additionally, this potential SMB lending partnership with Amazon could come as Goldman Sachs executives seek to meet their goals of diversifying their business in 2020 and beyond, according to Ganzelli, previous comments from those executives and other reports. “Small business is such a big driver of our economy,” he said.
Those are among the main opportunities. But just because Goldman Sachs and Amazon are involved doesn’t mean the SMB lending offering would succeed. For instance, both companies have had bouts of recent or high profile failure. Who, for instance, has forgotten the massive stumbles of Goldman Sachs leading up to the 2008 financial crash? And while Amazon has gained ground with fashion and apparel, the company has had a relatively hard slog selling trendy clothes to consumers. Could SMB lending become another pothole for those two companies?
Well, certain obstacles would have to be overcome. For Goldman, the learning curve to gain expertise on SMB lending would be severe, according to Ganzelli — even though all that Amazon customer data that’s already been acquired by the e-commerce giant would certainly help with that education. Still, “anytime you enter a new niche, it’s challenging,” he said. As for Amazon, the main — and perhaps only real downside visible at this point — comes from the commitment that comes with SMB lending. “Amazon will be contractually tied to this arrangement if it’s not a success or does not meet growth objectives,” he said.
All that said, this stands as an appealing time for these two heavyweights of the U.S. economy to see if they can make good money via SMB nonbank lending. “While the majority of small and medium size business lending comes from banks, alternative lending products are an increasingly popular option for SMBs,” said Stitzel. “Allowing you to work with one entity to streamline business operations and mitigate economic volatility in a cost effective way, frees a SMB owner to focus more on building their business and less on administration. Companies like Square and Intuit are already successfully doing this for SMBs using their platforms.”
That’s not the only wind behind the sales of this growing trend of alternative SMB lending, of course. Millennials still might take all kinds of scapegoating heat for various consumer, cultural or economic trends — unfairly or not — but the fact is that those younger people are growing up, and starting to take more responsibility for B2B operations, including supply chain and invoicing tasks. As that happens, millennials are playing a growing force in anchoring more B2B companies to mobile and digital platforms. In general, millennials prefer one-stop shopping with trusted outlets. That would certainly benefit Amazon and Goldman Sachs in any SMB lending offering they launch — as that is now helping such alternative lending offerings as Kabbage and some of the newer PayPal products.
“Millennials are the folks who grew up with the expectation of seamless digital experiences,” Ganzelli said. Those B2B consumers are willing to pay the often “hefty” premiums that come with such experiences, too, he said. “The delivery experience and the speed-to-close just blows banks out of the water.”
Tech giant Amazon is reportedly in talks with Goldman Sachs to offer business loans to those small and medium sized merchants operating on its marketplace, according to sources that the FT describes as “two people briefed on the discussions with the online retailer.” One of these sources said that it could launch as soon as March.
The news comes after CEO David Soloman spoke at the bank’s Investor Day recently, explaining that Goldman would be pursuing a “banking-as-a-service” model this year that would see the bank white labeling their products for third parties to use. As well as this, Solomon commented on a shareholders call last week that the bank is seeking to increase revenues from new channels such as consumer banking and wealth management.
One such channel is Goldman’s partnership with Apple last summer that saw the launch of Apple Card, a credit card solely available to Apple’s +100 million users in the US. The card’s launch was lauded by Solomon; and according to Business Insider, cardholders had $736 million in loan balances by the end of September, one month after the card was released to the public.
The Apple and Amazon deals highlight how Wall Street banks are employing and partnering with Big Tech to leverage advantage over fintechs, and ultimately gain access into markets that are historically not domains of the uber rich. Traditionally a bank that catered to elites, Goldman Sachs has been edging its way into consumer and small business banking ever since the launch of Marcus, its personal banking platform.
Amazon has been offering loans to merchants on its platform since 2011, using algorithms to determine which sellers would be best positioned to receive and repay a loan. Having previously partnered with Bank of America to finance such loans, the terms of these were for 12 months or less, with amounts funded ranging from $1,000 to $750,000. According to the FT, Amazon had $863 million in outstanding SMB loans on its balance sheet as of the end of 2019.
The digital nature of Amazon’s marketplace would accommodate Goldman Sachs’ neglect of brick-and-mortars stores, which have historically been a waypoint for small- and medium-sized businesses seeking finance.
LendIt Chairman and Co-founder Peter Renton described Goldman’s progression in the fintech space as “impressive,” noting that the speed at which it has been operating isn’t to be overlooked: “I thought something like this would happen but not in such a short space of time. Apple Card was only six months ago.”
As well as this, Renton was wary of how expansive the deal would be, admitting skepticism of it being a large project for either company. Given how both Amazon and Goldman have shown themselves to be selective in who they provide financing for, this assessment may prove correct.
Last week Politico reporter Ryan Hutchins noted on Twitter that Amazon has been alerting its website users who had installed Honey that the browser extension is no longer safe. The extension, which searches the web for sales coupons for items in your checkout basket and automatically applies them, was recently acquired by PayPal for $4 billion. The deal was agreed upon in November and completed last week. According to Hutchins, such warnings have been viewed by Amazon customers since just before Christmas.
Amazon is telling shoppers that the browser extension Honey — it gives you coupon codes and other ways to save — is malware.
Paypal bought Honey in November for $4 billion. That’s one extensive piece of Malware. pic.twitter.com/Di6I8RAX2X
— Ryan Hutchins (@ryanhutchins) December 20, 2019
Having been compatible for years without any security warnings from Amazon, critics have now raised the question over whether this was intentionally done to level competition between the two tech giants. Honey makes a profit by charging retailers a percentage of the sales made with the coupons that it finds, and with this now under PayPal’s umbrella, Amazon may no longer be comfortable taking that hit. Especially when its own Amazon Assistant offers a similar experience.
Speaking to The Verge, an Amazon spokesperson said that “Our goal is to warn customers about browser extensions that collect personal shopping data without their knowledge or consent.” A charge against Honey that did not seem to stick for Hutchins, who continued on Twitter with, “That’s how all browser extensions work – including Amazon’s own extension.”
During the summer, a security vulnerability was found in the browser extension only to be quickly patched. Following the coverage of this latest security warning, a Honey spokesperson stated to Wired that “We only use data in ways that directly benefit Honey members – helping people save money and time – and in ways they would expect … Our commitment is clearly spelled out in our privacy and security policy.”
Amazon has joined PayPal, OnDeck, Kabbage, and Square as being among the largest online small business lenders. On Tuesday, Amazon revealed that it had made more than $1 billion in small business loans to US-based merchants in 2018. Amazon says the capital is used to build inventory and support their Amazon stores.
By selling on Amazon, “SMBs do not need to invest in a physical store or the costs of customer discovery, acquisition, and driving customer traffic to their branded websites,” the company says. Small and medium-sized businesses selling in Amazon’s stores now account for 58 percent of Amazon’s sales. More than 200,000 SMBs exceeded $100,000 in sales on Amazon in 2018 and more than 25,000 surpassed $1 million.
|Company Name||2018 Originations||2017||2016||2015||2014|
|Funding Circle (USA only)||$792,000,000||$514,000,000||$281,000,000|
American Express announced plans this week to partner with Amazon to introduce a co-branded Amazon credit card for small businesses. Amazon does have a co-branded card with J.P. Morgan Chase for consumers shopping on Amazon’s site, and elsewhere. But this would be Amazon’s first card for small business owners.
“At American Express, we have been helping business owners grow for more than 50 years and we know that millions of them rely on Amazon,” said Glenda McNeal, President of Enterprise Strategic Partnerships at American Express in a statement. “We’re delighted to expand our partnership with Amazon by offering a new cobranded small business card, and by also harnessing the collective insights and expertise of our companies to deliver tangible value to our mutual customers who use Amazon’s services.”
This was quite a win for American Express as J.P. Morgan was competing for this partnership as well, according to CNBC. This deal puts American Express in an enviable position to court more small business customers in its effort to become a leading lender to small and mid-sized companies. Small business cards can be very lucrative for banks. Compared to consumers who might spend a few thousand dollars a month on credit cards, businesses can spend up to hundreds of thousands of dollars in monthly bills, according to CNBC.
“We selected American Express as our partner for the upcoming small business credit card because of our shared commitment to helping small businesses grow,” said Max Bardon, Vice President at Amazon in a statement. “Offering the best of both brands, the cobranded small business credit card program will combine the buying power, convenience and value small businesses have come to know and love from Amazon backed by the world-class service, benefits, access and security of American Express.”
Amazon launched Amazon Lending in 2011 to help small businesses finance and sell more goods on its platform. From the 2011 launch to June 2017, Amazon Lending reported that it issued $3 billion across 20,000 business in the US, Japan, and the UK. And the bulk of the growth has been from small businesses in the US, where the company originated $1 billion in loans in 2017 alone. So small business lending, particularly in the US, is big business for Amazon.
This new co-branded Amazon/American Express card for small businesses is part of a series of new partnerships between the e-commerce behemoth and banks. In February of this year, it was reported that Amazon had partnered with Bank of America Merrill Lynch to provide loans to merchants (on an invitation-only basis) from $1,000 to $750,000.
FinTech and mobile content has done more than provide exposure to alternative lenders and financing avenues.
“It’s rewiring the way that we think,” Dave DeFazio, a partner at StrategyCorps told deBanked while discussing mobile devices. StrategyCorps helps financial institutions enhance their checking account offerings.
“We’re addicted to our phones. We’re using them more than ever. The winners in whatever category of business will be the ones that connect better with their customer’s mobile lifestyles and behaviors.”
DeFazio believes that even the flagship personal banking product, the checking account, could be facing a significant makeover in the not-so-distant future.
“There are companies that are kind of nibbling away at the strangle hold on the definition of the traditional account,” said DeFazio. He added that while the public tends to define their banking relationships now by which bank holds their personal checking account, things could be different “down the road.”
Citing a white paper that StrategyCorps commissioned, DeFazio also pointed to deposit displacement as a potential cause of alarm for traditional free checking.
Easy mobile access to P2P platforms such as Venmo, make it more convenient for traditional banking users to opt to store their funds elsewhere.
Another company “nibbling away” at funds that would otherwise be deposited in a traditional checking account is Amazon.
According to Reuters, the e-commerce giant leant more than $1 billion to over 20,000 small businesses operating via Amazon Marketplace between June of 2016 and 2017.
The loans range from $1,000 to $750,000.
The results from this venture could prompt Amazon to purchase a small or mid-sized bank of its very own in the next 12 months.
“This may either be a tactical move or a broad strategic jump into banking, as Amazon seeks more stickiness with consumers and small businesses in consumer lending such as auto loans, credit cards and home mortgages,” CFRA bank analyst, Ken Leon, told Bloomberg in December.
DeFazio says that as consumers grow accustomed to whatever unique perks and advantages that Amazon and other platforms bring to the table for products such as a personal checking account, it could force traditional institutions to work much harder to stay attractive.
Amazon made headlines most recently for its blockbuster acquisition of Whole Foods, but the online behemoth already disrupted another sector – fintech — including banks and online lenders when in 2011 it started lending to small businesses. So far Amazon Lending has extended $3 billion-plus in capital to the small business community, a cool billion of which was lent in the past year alone.
Amazon has dealt a one-two punch to the lending market, filling a gap that was left by banks following the financial crisis and leveraging the massive data that the online retailer has access to through its Amazon Marketplace platform.
Matt O’Malley, co-founder and president of Looking Glass Investments, a fixed-income alternative investment firm focused on marketplace lending, said small business lending was a very natural evolution of Amazon’s business.
“Large levels of data give you the ability to increase your predictive power. Amazon has a great deal of information on how a company is doing and an ability to assess credit risk that is very likely unmatched as it relates to businesses selling on their platform,” O’Malley said.
This is not to suggest that Amazon’s future market share in the small business lending segment is a lock.
“In the long run, this entire fintech revolution is about the movement of capital and having to do it faster. So even Amazon is going to have competition. And the reason is there are fewer barriers to entry than before. From Milwaukee to Wisconsin, there is competition for building bank products. I’d put our math up against anybody in New York City thanks to technology,” said O’Malley of Looking Glass Investments’ own lending platform.
Nonetheless a lack of transparency surrounding interest rates for Amazon loans could interfere with repeat business. “Amazon should be careful about being respectful to business owners. Assuming the business does succeed, imagine that the borrower is either going to have a positive reaction or a negative reaction to the initial loan with Amazon. It won’t be good for long-term business if they have a negative reaction. If I were Amazon, I would be cautious on rates,” O’Malley said.
Something else that could throw a wrench into Amazon’s plans as a small business lender is banks, if and when they open the spigots to loan to this segment. While small businesses businesses have already proven a willingness and even a preference for turning to alternative lenders, the tables could turn at some point.
“That’s an unsettled question we think about every day. When do banks make the decision to get in the game? And we would like that to happen sooner rather than later because it would be good for our company LendSight, Inc. But at the same time, we don’t see that tipping point in the near term,” said O’Malley.
deBanked spoke with a pair of business owners that sell on the Amazon Marketplace platform, both of which Amazon has lent to.
LonoLife Living the Life
San Diego-based food and beverage maker LonoLife, the Hawaiian translation for which is peace and prosperity, was offered a line of credit with Amazon without having to ask for it. Jesse Koltes, one of LonoLife’s co-founders, spent some time with deBanked to talk about the offer, which came over the phone.
“It was super quick, super easy, as opposed to what you get with a banking relationship even if you get a better rate,” said Koltes. “Bank loans take more time and paper work, and with Amazon there was none of that.”
LonoLife never approached a bank for a loan. And given an exclusive agreement with Amazon for its top selling bone broth, they didn’t have to. “I 100 percent agree that access to capital for businesses without a lot of revenue is problematic. We’re not a capital intensive business so there are not a lot of assets to put behind as collateral for a loan with a bank,” Koltes said.
And while he declined to disclose the size of the credit line, Koltes characterized the amount as “meaningful” adding that Amazon adjusts it higher and lower, mostly to the upside.
“They have 100 percent transparency to one of the biggest parts of our business. That is something other lenders don’t have,” he said, referring to the sale of the bone broth product. “One reason they are able to move first and with more confidence is they have confidence you can pay something off. They are literally seeing how much money you make every month.”
LonoLife’s Koltes compared the rate at which Amazon lent to them as comparable to other non-bank lenders but probably not best in class and not equivalent to an asset-backed small business loan. “But it’s not as high as you get from venture debt,” he quipped.
LonoLife has been selling on Amazon since 2016 and was offered the line of credit about a year later. “It’s a virtuous cycle. We’re growing on Amazon and they’re funding the growth,” Koltes said.
Stephan Aarstol, founder of direct-to-consumer brand Tower, is best known for pitching his Stand Up Paddle Boards, in response to which he received a $150,000 backing from billionaire investor Mark Cuban. Little did Aarstol know that this would be the excuse banks would use not to lend.
“After Shark Tank banks no longer looked at us as a startup. They told us we don’t technically qualify for an SBA loan because they’re not in the business of giving billionaire loans,” said Aarstol referring to the company’s silent partner Cuban. Before the show banks pointed to the company’s lack of a two-year financial history. Meanwhile Tower’s revenue has climbed higher every single year since the company was founded, reaching $7.5 million last year.
Amazon, which offered its first loan to Aarstol in the amount of about $35,000 at about the same time PayPal offered him a $25,000 loan for working capital. He took them both. “We needed the capital for inventory,” he said of the Paddle Boards, which can take up to three months to produce. A couple of months later in 2013 Amazon followed up with another offer for a $145,000 loan. Tower accepted that loan too.
The first time Tower got a loan of any kind from a traditional bank was September 2014, more than four years from inception for a company that was profitable from day one. That fall the banks started lining up after Tower was named the fastest growing company in San Diego by the San Diego Business Journal.
Since then Aarstol has been straddling the fence of alternative lenders and traditional banks, having borrowed more than $1 million from Amazon alone. He feels loyalty to Amazon because they were one of the first lenders to offer him a loan. That plus the ease and speed at which he can access capital.
Meanwhile Aarstol has since widened the beach lifestyle brand, almost like a mini-Bezos would, to include sunglasses, surf boards, snorkeling, bikes, skateboards and even a magazine through which Tower can do its own advertising.
“We’ve expanded the brand and every new product class we open up requires additional inventory and additional capital,” he noted.
The Future Amazon
Perhaps the greatest sign for just how massive Amazon can become as a small business lender is in their ability to capture repeat business. If it’s any indication, both Koltes and Aarstol would return.
“We’ve been really pleasantly surprised with access to capital Amazon has given us,” said Koltes. “It has helped us grow our business. We’re growing at a fast rate. Without Amazon we would have had to pick and choose what we did.”
For Aarstol, it’s a combination of both allegiance and fear that fuels his relationship with Amazon as a borrower.
“What if banks all of a sudden are no longer willing to lend to small businesses again? What’s my fallback? This is a hedge for me to keep establishing credit. I’ll keep borrowing from and paying back Amazon loans,” he said, despite the interest rates of 11 percent to 13 percent.
Amazon had $661 million in seller receivables at the end of 2016, according to their earnings report, nearly double from the year before. These receivables are from loans made to small businesses (primarily to purchase inventory) who are sellers on their platform.
Apparently the lending business is going well for them too, since they claim the allowance for loan losses is so small that it’s not even material enough to report. And similar to Square Capital, Amazon incurs virtually no cost to acquire these borrowers.
One year ago, company CEO Jeff Bezos said in a letter to shareholders that “there are over 70,000 entrepreneurs with sales of more than $100,000 a year selling on Amazon.” By then the company had already lent more than $1.5 billion to small businesses across the US, UK and Japan.
“We wanted to bring the same shopping experience that you have on amazon, which is the one-click shopping experience, to the lending program,” a spokesperson says in a 2014 video about the program. “Instead of going to a bank, having interviews, audited financial statements, a 3 week process and then only a small fraction of people getting approved, our process is literally 3 fields and 3 clicks.”
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