E-commerce giant Amazon recently experienced a slowdown on its loan book to 2.6% after which it is trying to revive the falling business.
Why does Amazon’s loans business remain a slow grower?
For a company like Amazon that deals with thousands of small businesses every year, a loans business would have been an easy, growth-oriented task. The data available with the company makes it even easier for them to assess the creditworthiness of independent sellers. But even after eight years of launch, Amazon Lending hasn’t achieved the heights it could have potentially reached.
The service provides annual loans to small businesses at the interest rate of 6% to 17%. The business’ growth has been considerably slow in the last two years. In the period between the end of 2015 and the end of 2016, their outstanding loans doubled $661 million, and growth fell to just 4.7%. In 2018, the growth was just 2.6%, highlight the struggles of business despite enormous amounts of data on borrowers.
Owing to its bad performance, Amazon Lending has stopped issuing new loans in Japan and has also made staff cuts. Japan was one of the first three markets, where Amazon Lending first launched.
Gearing up for the second life
Now Amazon wants to start afresh and has placed dozens of jobs ads for positions in its Seattle headquarters as well Asia and Europe. The company wants to rebuild its business and also expand in new countries. The business has always been a secret project going within Amazon and doesn’t even have a website. Even the press is banned from attending its presentations during industry events. The new job descriptions by the company suggest disruption “of an entire industry,” but critics don’t believe the business is going to do anything more spectacular than its first iteration.
Co-founder and CEO of Kabbage, Rob Frohwein said that Amazon only sees data related to the sales on their marketplace when they should have a more 360-degree approach to view their potential borrowers. Goodbody analyst John Cronin said that Amazon’s failing efforts shows how complex underwriting decisions are. He noted that while Big Tech has customer data, it does not have access to credit history data, which makes decision-making more difficult.
Open Banking rules from the EU could help Amazon find a firm footing in the lending market, helping the company make a better decision. The rules allow tech companies to access bank data of the customers with their explicit permission. This could help in bridging the company’s information gap and speed up its slowing growth.
