I’ve posted before on Pando Daily about how disruption in financial services comes from below, as well as how new sources of data (and big data) are reinventing underwriting of loans. So it was really interesting to read today that Amazon is getting into the lending business. They are doing it by lending money (for inventory purchase) to select merchants in the Amazon marketplace, and are collecting via direct deduction from the Amazon Seller Account. This is pretty interesting for a number of reasons:
- Amazon can use its own transaction history for that merchant to determine who is a likely to be a good credit
- Amazon can acquire customers for this product very cheaply since it can communicate with them directly
- Amazon can collect with confidence since it is pulling form the merchant’s Amazon Seller Account, so unless the merchant stops selling on Amazon, Amazon should have high likelihood for collection. There are some similarities to Merchant Cash Advance in this model, where the “lender” pulls its repayments directly from credit card receipts.
Underwriting, Marketing and Collections are the three keys to a healthy lending business, and in this case, Amazon Lending has all of them.