Making loans to the small businesses selling through its website seemed like a straightforward win for Amazon.
After all, the US tech giant has granular trading data to help it assess the credit worthiness of the millions of independent sellers on its site.
But eight years after it launched, Amazon Lending, which offered annual loans at interest rates of between 6 per cent and 17 per cent, is languishing.
In the last two years, growth has slowed significantly — outstanding loans almost doubled between the end of 2015 and end of 2016, to US$661 million ($1 billion), yet growth fell to just 4.7 per cent the following year, and was only 2.6 per cent in 2018, according to the company's most recent annual report.
It has since stopped issuing new loans in Japan, one of its first three markets, and reportedly cut staff while it tried to improve its understanding of credit risks.
Now Amazon appears to be gearing up for round two, having placed job ads for dozens of positions across Europe, Asia and at its Seattle headquarters. The listings suggest that the company wants to overhaul its existing loan products, expand into several new countries and "turn the finance industry on its head".
Amazon has been notoriously secretive about its financial services projects — Amazon Lending does not have a public website, and has banned press from attending its presentations at industry events.
But its latest pitch to prospective employees asks applicants: "Are you interested in helping us disrupt an entire industry?"
Its critics are not convinced that its second push will be more successful than the first, and said Amazon relies too heavily on its own data, on sellers' inventories and cash flow, and it only has a partial picture of credit worthiness.
Rob Frohwein, co-founder and chief executive of rival US business lender Kabbage, said: "They only see part of the picture if all the data are related to sales on one marketplace . . . you really have to try to draw a more 360-degree view [of potential borrowers]."
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John Cronin, analyst at Goodbody, said Amazon's stuttering early efforts will have highlighted "the complexity of underwriting decisions".
"The reality is that while Amazon and other Big Tech firms have access to substantive customer data, what they do not have is credit history data. This is a major gap in the context of lending decision-making," he said.
But new EU rules — known as "Open Banking" in the UK and PSD2 in the rest of Europe — could now make it easier for Amazon to make more informed lending decisions. The regulations, which started coming into effect last year, allow technology companies to access banks' customer data if they have customers' permission.
Such access would allow Amazon to see information such as repayment histories and income from other marketplaces.
Claurelle Schoepke, general manager of Amazon Lending Europe, told a recent industry event that the regulations "help us to start [answering] questions about what other kinds of information should we be using in our underwriting".
Kuangyi Wei, director of strategy at Parker Fitzgerald, the specialist financial services consultancy, said: "Amazon's success to date is predicated on storing and processing data, analysing data and monetising data insight. Arguably financial data are the most valuable type of all, and logically it won't want to fall short on that."
Schoepke acknowledged that Amazon is "not there yet", but the suggestion that the tech giant is experimenting with PSD2 is likely to alarm banking executives, who have previously complained that the rules give big tech groups an unfair advantage.
Earlier this month, Banco Santander announced a partnership with Amazon's rival eBay, highlighting the perceived potential in combining data from banks and tech giants to create more efficient or personalised products.
Ana Botín, Santander's executive chairman, has previously warned about a lack of "symmetry" in PSD2, noting that tech companies can combine banks' data with their own to develop more personalised products, but banks have no reciprocal access to do the same.
Amazon is also designing an "entirely new" customer experience for borrowers, working on new types of loan and planning new international expansion, including "scaling up" operations in Hong Kong, according to job adverts.
Amazon Lending currently lends directly to businesses in the US and UK, and refers sellers to third-party lenders in India and China.
Credit is also becoming a "critical component" of Amazon Business, a separate unit that sells products to other companies. It quietly launched a new invoice financing product — a form of credit secured against payments owed by customers — last year, entering several new countries, including Germany and France. It has hired credit analysts and managers from specialists such as the UK's MarketInvoice, and plans to expand into Italy and Spain in the near future.
While Amazon's growth has slowed, competition in the business lending space has grown rapidly. New capital rules introduced after the financial crisis made it harder for small firms to get credit from established banks, but nonbank lenders are increasingly filling the gap. Kabbage, for example, lent US$2b in 2018, while PayPal Credit now lends more than US$1b a quarter.
Frohwein said he was confident that specialists like Kabbage would be able to continue competing against Amazon.
"They're focused on how lending can augment and help their core business . . . focusing on specific groups of sellers, saying the funds have to be utilised to grow on that platform, other restrictions," he said. "That naturally limits their market unless they change their philosophy."
Amazon declined to comment on any expansion plans. A spokesperson said: "We created Amazon Lending to make it simple for sellers to efficiently get a business loan, because we know that an infusion of capital at the right moment can put small and medium-sized business sellers on the path to success."
Although Amazon has put particular effort into lending to businesses, the company has also dipped its toe in a wide range of financial product pools, exploring everything from in-store credit card readers to consumer current accounts. As with its business lending ventures, however, many of them have proved less successful than expected.
When the company launched a "pay monthly" consumer lending service in the UK at the end of 2015, for example, people close to Amazon said it would be "a game-changer".
Within 18 months, it had been discontinued.
Some failures have been put down to poor timing: the company bought TextPayMe, a peer-to-peer payments company, in 2007, but a 2018 report by CBInsights argued that "it's likely that Amazon was too early" to the market.
The deal came two years before the founding of Venmo, which went on to popularise peer-to-peer payments. But while Venmo, which is now owned by PayPal, has gathered more than 40m users, TextPayMe — which was rebranded Amazon WebPay — failed to build the same momentum and shut down in 2014.
One British business banking executive said Amazon suffered from a lack of focus. "The largest difficulty I understood was them working out who is the customer they target and what's the actual product . . . I don't think they have been clear internally as to whether they are using [lending] as a tool to lock people into the Amazon ecosystem . . . or making it a standalone transactional play," he said.
The executive added, however, that "they are getting closer to working out those answers".
In particular, Amazon has recently focused on its own-branded credit cards in several countries. Local partners such as Synchrony Financial in the US and NewDay in the UK take the credit risk, paying Amazon a fee for their brand.
Earlier this week it announced the latest new product in this push, unveiling a new secured credit card for customers with poor or limited credit histories.
Written by: Nicholas Megaw
© Financial Times