The mantra in marketplace lending is to build, buy or partner. When people say this they are talking about fintech firms and banks and how they should work together. One side left out of this equation is fintech platforms getting into lending for their own customers like Amazon, Paypal, or EBay. All are or soon will be in the lending business. And we should all take notice as borrowers and investors at how interest rates and credit quality could affect our returns by these huge firms doing more lending.
Take a look at this slide from a presentation I've given 3 or 4 times about the effect of fintech and online lending on the equipment leasing industry.
In this case, we are looking at what I call the hybrids, companies that use fintech and provide some banking services already. It makes tons of sense for these 3 big tech firms to get into lending cause they have access to excellent quality customer data. After all, Paypal knows exactly how many transactions you are processing and the amount of those transactions. Amazon and EBay know exactly how much revenue your sales are generating. These are excellent data points to have when making a lending decision. Let's see what's new with these 3
Amazon lends to its FBA (Fulfillment by Amazon) sellers and other merchants since 2011. Our friends at Nerdwallet have a nice analysis of the program in detail where they lend AMZN merchants up to $750,000 based on Amazon sales figures. A new development is Amazon is increasing its presence and lending ability in China, per this PYMNTS.com piece. The other recent news is 2 partnerships with conventional financial firms Bank of America and American Express.
In February, AMZN and Bank of America announced a partnership to expand the AMZN lending program. The partnership will lower Amazon's risk and cost of capital. So far, Amazon's attempts to slowly control its growth in lending mean the partnership has only been mildly successful, yet it's an important development for a behemoth like Amazon to get more competitive cost of capital for its lending operation.
American Express and Amazon have a co-branded credit card, as of June, to target Amazon merchants with a small business credit card to help them with their e-commerce business.
Paypal has been lending to its customers since 2013 with their Paypal Working Capital program. It's similar to some of the merchant cash advance loan programs out there that lend based on your credit card sales, or in this case, Paypal processed transactions (Cash, currency or credit cards).
Their biggest recent move was the acquisition of SMB lender Swift Capital last August and here's some information from another of my presentation slides.
The large increase of up to $500,000 in loan capacity is huge for Paypal customers as the original program had a cap of $125,000. They can serve many more good quality businesses with this acquisition. This is the new LoanBuilder program that you may see ads for on your social media. Loans are a fast growing area for Paypal and as of May, they've lent over 625 million GBP just to UK customers. That's not even their biggest market. The US is.
EBay does not have a tradition of lending to its power sellers. There are a couple reasons for this, most notably that until a couple years ago Paypal was a part of EBay and you could borrow there. EBay is making a jump into the loan business now with a partnership with Square Capital, the lending arm of Square. Similar to Amazon's program, by using its own sales data, EBay will lend up to $100,000 to its merchants, who they call a successful but 'underserved' category of borrower. EBay is also supporting Apple Pay now and while Apple Pay is for buyers on the e-commerce platform, it would not surprise me to see this addition lead to more lending options in the future for merchants. Square Capital will run the program for EBay.
One last exciting piece about this, which I will say in advance is highly speculative, is that Square's CEO is Jack Dorsey. Does his name sound familiar? He's also the CEO of Twitter and you can follow there @jack. Jack LOVES Bitcoin saying it's 'the currency of the future' and that it will become the web's 'native currency'. One flip of the switch and all EBay's more than 25 million active sellers could be accepting Bitcoin as payment, as could Square Capital's other customers.